San Fran Fed Asks If "People Understand Monetary Policy"; Finds Those With "No High School Diploma" Don't

Tyler Durden's picture

For their sake, we hope at least the answer from the Fed is "yes." Yet it is quite ironic that the subtext of this paper is that Monetary Policy can actually fail, when, get this, people don't grasp all the nuances of monetary policy. In other words, it is not the Fed's fault when it fails - it is the people's fault: "we fi?nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma." Cue Kartik Athreya to explain to us all why only Ph.D.s understand the complexities of monetary policy when it works, and why it is those without a highscool diploma that are at fault, when it doesn't.

The Abstract:

Do People Understand Monetary Policy?


By Carlos Carvalho and Fernanda Nechio


We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether U.S. households are aware of the so-called Taylor (1993) rule. For comparison, we perform the same analysis using questions from the Survey of Professional Forecasters. Our fi?ndings support the view that some households form their expectations about the future path of interest rates, inflation, and unemployment in a way that is consistent with Taylor-type rules. The extent to which this happens, however, does not appear to be uniform across income and education levels. In particular, we fi?nd evidence that the relationship between unemployment and interest rates is not properly understood by households in the lowest income quartile, and by those with no high school diploma. We also fi?nd evidence that the perceived effect of unemployment on interest rates is asymmetric, being relevant only for interest-rate decreases. Finally, we argue that the relationships we uncover can be given a causal interpretation.



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LawsofPhysics's picture

More tax dollars "hard" at work.  End the fucking Fed.


Yes, apparently the central bankers are just mis-understood.  So are the laws of physics and thermodynamics, now you tell me which "laws" are more subject to change for that lower 45%?  Speechless indeed.

flacon's picture

The only people who understand money are those who earn it through PRODUCTIVE private sector jobs. PhD professors are mostly in the unproductive public sector along with those who receive food stamps to keep them alive. 



LawsofPhysics's picture

slaves and slave masters, some things never change.

Manthong's picture

All they have to know is that "policy" in the context of the Fed is a cover word for repression.

francis_sawyer's picture

So does this mean that if I have a diploma from the "School of Hard Knocks" (ostensibly ~ an degree course that nary an elite has)... & if I commit a crime like snatching someone's purse or pickpocketing them... I'm EXEMPT from prosecution?

TheSilverJournal's picture

The central planners of our money don't even understand the relationship between unemployment and interest rates. In reality, the Fed’s dual mandate is nonsense. Dialing inflation up or down doesn’t necessarily bring about more or less employment. In the long run, the central planning of money can only bring lower employment as resources are being misdirected into unproductive areas.  High inflation combined with high unemployment is the norm during a currency crisis.

economics1996's picture

The Phillips Curve is complete bullshit.  The only reason unemployment declines when there is inflation is that labor becomes cheaper when there is inflation.

If we did not have price floors there would be no fucking unemployment problem.

These fucking monetarist/Keynesian clueless fucks need to get a real job.  Fucking clueless dumb ass idiots.


And any additional employment due to the lowering of realm wage rates is dependent on many other economic conditions, and is by no means a given.



TheSilverJournal's picture

Sure, inflation makes min. wage laws less relevant. More importantly, though, the lowering of interest rates creates a false prosperity today at the expense of future prosperity by encouraging spending now of money that would have otherwise been saved and used as investments in capital to create goods in the future.

All you have to do is look at Zimbabwe to know the Phillips curve is BS.

nostromo17's picture

doesn't follow whatsoever - try again

nostromo17's picture

your acceptance/apathy is what keeps things from changing.

LawsofPhysics's picture

And what do you know about my actions or that of my employees?  What's that? you don't know anything about what we are doing? perhaps you should STFU.

GenX Investor's picture

News Flash:  Correlation = Causality...  Well done boys, excellent thesis!  What else did you come up with???

nostromo17's picture

Except people with food stamps could be productive if they had a job and professor are ultra non-productive having a job.

Your lack of compassion illustrates your lack of depth of understanding and your comfort being someone who assumes they have a productive job

so they don't have to give a shit.

LawsofPhysics's picture

Rule # 1-Nature makes no promises regarding anyone's survival idiot.  I don't know what graduate school you are currently enrolled in, but I suggest you get back to work.  I, and my company, are very charitable in our giving each year.  I am in the business of feeding people asshole, hard work, always has been.  what you, like so many of the youth today fail to realize is that there is a difference between receiving a degree and earning a degree or a position in the productive workforce for that matter.

Moreover, many of you food stamp recipients have made numerous concious decisions to have a lot of children, you don't have to be "educated" to understand that having more children when you can not feed yourself is fucking stupid, now you want someone to "save" you and your children - see rule #1.

Comay Mierda's picture

even 2nd graders can understand that more money printed = less valuable currency. all these idiot phd's that are so busy with this mental masturbation of creating "scholarly reports" on interest rates/unemployment/targeting gdp fail to understand this and actually believe in the bullshit government data. who are the idiots here fed fuckers?

killallthefiat's picture

I agree.  My second grader totally understands the function of the gov't/fed.  They print money and it gets worth less and less.  I even printed out some dollars on the laserjet and had 100 copies come out. (B&W and overly large, of course.)  She asked why we could not do this in the correct size and color.  Out of the mouths of babes...

Azannoth's picture

The best empirical proof that people don't understand monetary policy is that we didn't have a Revolution yet

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford

xela2200's picture

I pledge Allegiance to the flag of the United States of America and ...

Wait wait


Got it. Sorry, the mind control programing kicked in for a sec.

V in PA's picture

Improving the public’s understanding of the central bank’s policy strategy reduces economic and financial uncertainty


In other words... The sheep need to be brainwashed a little more, and then the FED policy will work.

Since the less educated are part of the financial equation, wouldn't including their ignorance into the model make for a better model?

Azannoth's picture

The Church has been doing exactly this (quite successfully at that) for the past 2000 years, I guess the bankers are a little envious of that because after all they too are doing God's work

fonestar's picture

I would like to form a think tank composed of GED recipients and high school drop outs to find out if Federal Reserve board members understand monetary policy.

johnQpublic's picture

i thought the first rule of fight club is that we dont talk about fight club


Clayton Bigsby's picture

Was thinking exactly that - are my tax dollars really supporting this?

Island_Dweller's picture

First bloggers and now those with only a high school edumacation.......

Anyone else remember this one?:

Bottom line: We're not smart enough to play a role in the economy.

Eireann go Brach's picture

Once I seen who wrote this??... 2 fucking Mexicans??. Go back to the fields and count the berries you picked!

JPM Hater001's picture

I have been asked not to comment on this...

DaveyJones's picture

if people INSIDE the Fed don't understand monetary policy, why should people OUTSIDE?

dwdollar's picture

Let's boil this down.

The FED (which has unlimited funds) funds studies which suggest only an elite minority understand monetary policy therefore "proving" the necessity of said FED to be controlled by said elite minority for the "betterment" of all.


Theosebes Goodfellow's picture

Wait! Wait! Wait! I wanna' play too, DWDollar! Let's see, boiling..., boiling...

#1: real asset-based currency = good.

#2: debt-based currency = bad.

#3: Borrowing currency = bad.

#4: Lending currency = good, but get real asset collateral.

#5: Printing debt-based currency = bad.

#6: Manipulating interest rates of over-printed debt-based currency = bad.

But of course, I, as a guy who simply got a GED, can't possibly understand monetary policy....

/sarc off


GeneMarchbanks's picture


I'm not. Basically we're now at the point where 'it's not us, it's you!' is being deployed because the clusterfuck is beyond saving.

Money is a minds construct. It could essentially be anything or nothing. FIAT seems absurd without faith doesn't it?

Confused's picture

100% correct. Its obvious in everything "they" do. Surprising? Not in the least. But it is fucking annoying.

LawsofPhysics's picture

"FIAT seems absurd without faith doesn't it?"


nostromo17's picture

or delusions without faith?

LawsofPhysics's picture

pick up a history book and tell us all how that turns out, over and over. No delusions here.

dexter_morgan's picture

What a waste of time, money, energy.

francis_sawyer's picture

If they have that much time on their hands, I wish they'd just go back to surfing for midget tranny porn on the web...

dwdollar's picture

I don't understand the relationship between unicorns and pixie dust. Does that make me a fool also?

VelvetHog's picture

What was the question again?

dwdollar's picture

This reminds me of a professor laughing at a student who asks a valid question which the professor can't answer.

pods's picture

I asked one of those talking about p-orbitals. An electron can be here or here, but not in between.

So I asked if it can be here or there but not in between, how does it get from here or there?


"Can't ask that question."


Willzyx's picture

Thats quantum mechanics for you.  It doesn't produce definative black and white answers, but but accurate and replicatable probability distributions.  Even the greatest minds in quantum mechanics don't fully understand it and can't answer seamingly simple questions like yours.  Einstein sat on the sidelines of the quantum revolution.  It's theories played no role in his later works.

AccreditedEYE's picture

Disgusting....and will probably be used as more ammo in the war for Central Planning.