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Thu, Jan 31 2013 09:35:56

Reaching for Yield

  1. mileskimball
    Miles Kimball@mileskimball
    New post: "Contra John Taylor" blog.supplysideliberal.com/post/417857838… My reply to John Taylor's WSJ op-ed this morning, backing up my critical tweet.
    Tue, Jan 29 2013 07:07:32
  2. mileskimball
    Miles Kimball@mileskimball
    My latest on Quartz: "John Taylor is wrong: the Fed is not causing another recession." qz.com/48696/john-tay… Also see blog.supplysideliberal.com/post/417857838…
    Tue, Jan 29 2013 10:37:02
  3. Esguitos
    Formerwar@Esguitos
    @Noahpinion i don't understand the criticism to the 'low interest rates fuel specilation argument'. Why is that inconsistent with any model?
    Tue, Jan 29 2013 08:35:37
  4. mileskimball
    Miles Kimball@mileskimball
    @Esguitos @Noahpinion In a perfectly rational model, with no asymmetric information, any speculation in the model is a good thing.
    Tue, Jan 29 2013 18:13:11
  5. Esguitos
    Formerwar@Esguitos
    @mileskimball oh i see. Thanks
    Tue, Jan 29 2013 18:23:36
  6. ClayNickel
    Clay Nickel@ClayNickel
    @mileskimball 2. Speculative search for yield. I see it daily because I work with ACTUAL INVESTORS, not just emperical models
    Tue, Jan 29 2013 17:47:07
  7. mileskimball
    Miles Kimball@mileskimball
    .@ClayNickel Thanks! What I gather from what you say is that QE causes a bit of an uproar for those in the financial industry. Is that fair?
    Wed, Jan 30 2013 05:52:56
  8. mileskimball
    Miles Kimball@mileskimball
    We need more in the way of formal economic models of "reaching for yield." What are the best models out there so far? Any links?
    Wed, Jan 30 2013 06:24:40
  9. mileskimball
    Miles Kimball@mileskimball
    .@ClayNickel I believe "reaching for yield" is real. My claim in blog.supplysideliberal.com/post/417857838… is that grokking requires a behavioral finance model.
    Wed, Jan 30 2013 06:26:55
  10. ocheyette
    Oren Cheyette@ocheyette
    @mileskimball: RFY is entire point of Fed action. QE3 is Fed RFY to drive asset prices (eg homes) up. But RFY != "speculation".
    Wed, Jan 30 2013 06:56:17
  11. mileskimball
    Miles Kimball@mileskimball
    Now I am doubting the reality of "reaching for yield" if I define it as risk premia being lower when nominal interest rates are low.
    Wed, Jan 30 2013 06:59:41
  12. mileskimball
    Miles Kimball@mileskimball
    The way people tell the story about reaching for yield, it is as if people are willing to accept a lower risk premium when rates are low.
    Wed, Jan 30 2013 07:00:38
  13. mileskimball
    Miles Kimball@mileskimball
    Do people really accept lower risk premia when nominal rates are low (e.g. due to nominal illusion)? If not, what is reaching for yield?
    Wed, Jan 30 2013 07:03:00
  14. mileskimball
    Miles Kimball@mileskimball
    Is "reaching for yield" just another way of saying people respond to the risk premium (gap between expected risky return and safe rate)?
    Wed, Jan 30 2013 07:04:06
  15. mileskimball
    Miles Kimball@mileskimball
    If "reaching for yield" is a name for the normal response to the risk premium, then it isn't much of a "low rates cause speculation" story.
    Wed, Jan 30 2013 07:08:49
  16. ocheyette
    Oren Cheyette@ocheyette
    @mileskimball: The Fed forces down risk premia for long term rate risk. That pushes down other risk premia.
    Wed, Jan 30 2013 07:09:19
  17. scottew
    Scott@scottew
    @mileskimball Out of my depth here, but I figured the concept was that investors have a "set point" for the yield they're after (1/2)
    Wed, Jan 30 2013 07:11:49
  18. scottew
    Scott@scottew
    @mileskimball and seeking that set point during period of low rates means that they unwittingly end up in different risk category. (2/2)
    Wed, Jan 30 2013 07:13:20
  19. AllisonSchrager
    Allison Schrager@AllisonSchrager
    @mileskimball For pension funds there is. Their accounting and funding rules give them every incentive to do just that
    Wed, Jan 30 2013 07:12:13
  20. fbaseggio
    FMB@fbaseggio
    .@mileskimball I think “reaching for yield” is risk-seeking behavior, eg to cover up insolvency, either irrationally or by agents.
    Wed, Jan 30 2013 19:02:14
  21. mileskimball
    Miles Kimball@mileskimball
    New post: "Reaching for Yield: The Effect of Interest Rates on Risk-Taking" blog.supplysideliberal.com/post/419443846…
    Thu, Jan 31 2013 06:41:28
  22. ModeledBehavior
    Modeled Behavior@ModeledBehavior
    By “Reaching For Yield” Do You Mean “Demand Curves Slope Downward” forbes.com/sites/modeledb…
    Thu, Jan 31 2013 06:54:48
  23. ModeledBehavior
    Modeled Behavior@ModeledBehavior
    @mileskimball I totally agree that the behavioral route needs more research. My notion is just an alternative -k
    Thu, Jan 31 2013 08:14:29
  24. cconces
    Carola Conces Binder@cconces
    @mileskimball @ModeledBehavior My simple model of reaching for yield is here: carolabinder.blogspot.com/2013/01/reachi…
    Thu, Jan 31 2013 09:12:38
  25. mileskimball
    Miles Kimball@mileskimball
    .@cconces @ModeledBehavior John Taylor is claiming "reaching for yield" is a problem. Your model can't give John what he needs for his arg.
    Thu, Jan 31 2013 09:30:13

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Miles Kimball

Professor of Economics and Survey Research at the University of Michigan

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