March 7, 2008
Mr. Minshkin's delusions know no bounds.
Mr. Minshkin did not shy away from exposing the extent of his delusional thinking in yet another of his learned speeches, this time in Oslo, Norway, at the Norges Bank Conference on Monetary Policy (see:http://www.federalreserve.gov/newsevents/speech/mishkin20080307a.htm)

He should have been more prudent, for European participants at the Conference no doubt are much better equipped than American observers to diagnose Mr. Minshkin's delusions for what they are.

Theoretically, we should relax and be happy when Mr. Minshkin, a learned and very influential Governor of our Central Bank, goes to Oslo to give a worried world such reassuring messages as: the risks to inflation posed by Dollar depreciation are negligible. Well, we had our trusty word processor scan Mr. Minshkin's speech multiple times searching for words like "Oil", "energy prices", or"food prices", but every time the search came up negative. Not surprising when the speech is given by someone devoted to the idea that energy and food prices are of negligible importance both for long-run inflation and monetary policy, not to mention for the welfare and standard of living of Americans. If the recent undisputable connection between Dollar depreciation and Oil/Inflation did not register on Mr. Minshkin's radar screen of possible economic risks, he can be excused because this channel of transmission has not been recognized, and hence not yet included in, any version of (readers hold your breath!) the SIGMA model,"a Dynamic Stochastic General Equilibrium (DSGE) Model used at the Federal Reserve Board for policy simulations" and monetary policy.

The problem is that SIGMA models still fail to differentiate between producers of Oil and Chinese producers of toys and kitchenware. Of course, for computers running SIGMA models, garbage in means garbage out. The question is who is putting the garbage in. Mr. Minshkin has given us a clue.