Here is their abstract (pdf):

We evaluate possible explanations for the absence of a persistent decline in inflation during the Great Recession and find commonly suggested explanations to be insufficient. We propose a new explanation for this puzzle within the context of a standard Phillips curve. If firms’ inflation expectations track those of households, then the missing disinflation can be explained by the rise in their inflation expectations between 2009 and 2011. We present new econometric and survey evidence consistent with firms having similar expectations as households. The rise in household inflation expectations from 2009 to 2011 can be explained by the increase in oil prices over this time period.

Writing on the paper, here is Jim Hamilton’s bottom line:

The phenomenon identified by Coibion and Gorodnichenko would undermine the Fed’s ability to stimulate the economy in a number of important respects. First, it makes it much more difficult for the Fed to try to justify its actions to the public on the grounds that inflation is currently too low. Second, if makes it harder for the Fed to stimulate the economy without raising inflation, particularly if one byproduct of stimulus efforts is an increase in the relative price of oil. Third, it implies that ex ante real interest rates, if we base that concept on the perceptions of large numbers of economically important decision makers, are extremely negative at the moment, casting doubt on the claim that a primary policy objective should be to make them even more negative.

By Jeff Sommer, it is interesting throughout.  Here is one good part:

Shiller and Thaler helped to found the field of behavioral finance to help explain a lot of these anomalies. Where’s the difference between the two views, as you see it?

If I were to characterize what differentiates me from Shiller or Thaler, it’s basically we agree on the facts — there is variation in expected returns, which leads to some predictability in returns. Where we disagree is whether it’s rational or irrational. And there’s nothing in the available evidence that allows one to really settle that in a convincing way. The stuff that both Shiller and I have done has been very illuminating in terms of the behavior of returns. The interpretation of that is open for reasonable disagreement.

I think all points of view should get a full airing, and that’s why I’m thrilled to get the prize with Shiller.

Coming from the other side, here is Shiller on Fama.

South Korea’s success has been deep but not wide. Almost half of its population lives, works and competes in Seoul. Its occupational structure is also narrow. The number of professions in South Korea is only two-thirds of the number in Japan and only 38% of that in America. This striking statistic is not lost on the South Korean government (few are). It has appointed a task force to foster 500 promising occupations, such as veterinary nurse, chiropractor and private detective.

Tyler Cowen, an economist at George Mason University, once pointed out that America has more than 3,000 halls of fame, honouring everyone from sportsmen to accountants. If people cannot reach the top of one ladder, they climb a different one. In South Korea, by contrast, people share a common definition of success. Everyone is clambering up the same set of rungs, aspiring to the same prizes and fearing similar failures. Those who say they are trying for something else are not quite believed. “People would rather be the tail of a dragon than the head of a snake,” as one journalist put it.

The entire article is interesting, from The Economist.

I was sceptical at the outset, but quickly won over. The toilet and shower unit is exactly the same as my daughter had in her student accommodation and she much preferred it to having to share bathrooms and toilets with other students. Who wouldn’t?

What really excites me about this opportunity is that land that might otherwise lie idle for five years will be brought back into life and used to provide much-needed temporary accommodation for 36 men and women in Brighton and Hove.

…Before embarking on this venture, we spoke with our homeless clients about the concept. They loved it. In particular, they loved the fact residents would have their own kitchen, bathroom and front door. They felt that being self-contained is far more desirable than a room in a shared house even though the floor space, at 26 sq m, is roughly the same as they would have if they were sharing.

…When it was suggested that we house homeless people in steel shipping containers in a scrap metal yard, I thought it was either April Fool’s Day or we had lost all concept of decency.

There is more here.  For the pointer I thank a loyal MR reader.

Yesterday’s post, Stayaway from Layaway, elicited lots of comments but less analysis.

Some commentators suggested that people who use layaway plans have commitment problems (self-control problems) but that they are meta-rational and choose layaway programs to help them overcome. The problem is that when people are irrational at one level and rational at another it’s difficult to know which level is in control and which level is being appealed to by firms.

People who have self-control issues may think that they are being meta-rational by entering into layaway programs but perhaps, ala Dunning-Kruger, they are fooling themselves and will soon find it difficult to pay on the installment plan. According to one marketer, “up to 25% of layaway orders, on average, are cancelled.” Canceling exposes the consumer to service and cancellation fees. Moreover, I wouldn’t be surprised if some people never get around to reclaiming their payments. We know, for example, that billions of dollars on gift cards are never used.

We also need to keep in mind the incentives of the seller. Walmart, Kmart and Best Buy offer layaway programs because they increase profit. Are the higher profits a result of selling commitment to the meta-rational? Or are the higher profits the result of getting the less than perfectly rational to buy more? The ultimate commitment plan is to not buy what you can’t afford and layaway doesn’t help you with that problem. What layaway does do is encourage you to commit now to buy at Walmart. In other words, it binds you to Walmart and, fyi, it does so weeks before goods typically go on sale.

The way the programs are often advertised and discussed–layaway in case the store runs out!–is also a classic sales technique to encourage buying by eliciting feelings of (false) scarcity and potential loss.

I would like to see more data but I have not yet seen any reason to revise my belief that layaway plans are often a bad deal for consumers. I have, however, discovered one reason for layaway that does make some sense. Namely, to keep the presents hidden from snooping children.