Originally published at: http://boingboing.net/2016/09/27/sim-fed-chairman.html
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The Fed could easily be replaced by a rules engine which would probably do a better job. Also we wouldn’t have to listen to Alan Greenspan-style obscurantist jargon.
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I followed current Fed policy by setting the funds rate at a nice fuck-the-savers level of 0.25 and just holding it there no matter what else happened.
By the end of my term, we had steady unemployment of 1.5 percent and inflation at 11 plus percent and rising.
Predictive accuracy of this model can best be summarized by using the econometric term, “bupkis”.
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What is the rule set that wins this simulation every time?
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Eschew Obfuscation 
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Maybe there isn’t one. Maybe a Rate Setting Chicken that pecks randomly at the controls wins every time.
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There are two settings.
Peck at the left button, it’s “Winner! the interest on your savings account is enough to buy a venti latte this month”
Peck at the right button, it’s “Sorry! the interest on your savings account is enough to buy a Big Gulp this month”
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What a fun game.
I took it up to 5. Guess where my unemployment and inflation ended up?
1.5 and 11 and rising.
Bupkis indeed.
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Heck I took it up to 10 and unemployment way way down but inflation still way way up… or maybe it is trying to show that fed rates don’t matter?
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Fed rates matter enormously when you get to borrow money at 0.25 percent and lend it out at 3-4 percent.
Assuming, of course that “you” are a bank.
Fed rates also matter enormously when the only alternatives for small savers are (a) park your cash in a jam jar under the floorboards or (b) take a flyer on the equities market.
Assuming, of course, that “you” are a bookie, oops, I mean a stockbroker.
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I was trying to get me some 1946s Hungarian hyperinflation, but could only get it to about 11.5%. Is there some SimCity hack like “C A S H” I can use for some serious QE?
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Doing whatever the President thinks will be best for his party.
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Right, the fed rate is around 0.25% and the t-bill rate is about 1.5%, so a bank can take $1000 and kite it into millions, because treasury bills are security against more loans. Sort of like renting land from BLM and getting paid not to grow crops on it.
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Running it at 7% gave me 3.77% unemployment and 5.55% inflation, at least when no “events” were occurring. Still got a “Sorry” because the targets were missed, even though both measures were completely steady.
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Mr. Paulson? You’ve had your turn. Let the other kids play.
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