FedSim Followup

In my second attempt at Evan Soltas' FedSim, I was able to hold off rising inflation expectations for a while, mostly by raising the Funds rate when the pace of improvement in the labor market was encouraging, rather than when the level of unemployment was satisfactory. The cost of this, of course, is that I stifled that pace, and we found ourselves with unemployment stuck between 6 and 7%, and inflation, especially core, began to pick up significantly toward the end of the experiment. These are, of course, Milton Friedman's "long and variable lags." Oh, well, back to the woodshed.

Showing improvement

FedSim, by Evan Soltas

Blogger, college student, Wonkblog contributor, and all-around wunderkind Evan Soltas has created a monetary policy simulator called FedSim. The idea here is to do a better (more realistic) job of presenting a simulation of central banking action than those that are offered by the ECB and the San Francisco Fed.

In a followup post, Soltas outlined the gargantuan obstacles to the sort of modeling that underlies these sorts of simulators. I think he's all around done a great job overcoming them, however.

My first attempt was going along fine until Zimbabwe set in. I think I allowed the Funds rate to stay so low so long that my 'citizens' came to anticipate low rates forever. Thus my wild punches (2020 and onward) at inflation never landed. My next attempt, the results of which I will also post to CW, will hopefully be less Weimaresque.

I'd encourage readers to try the simulator out and see what you get.

First sad attempt