Transcript for:
The Role of Expectations in Economics

expectations play a huge role in economics so what I want to today not only in asset pricing I mean asset pricing obviously it's all about the future really H but but also in the kind of issues we have discussed ER in throughout the course and so that's what I want to do essentially is I want to uh give you a shortcut to think about the role of expectations in in the kind of models we have already discussed and so I'm going to do all that in the most basic mode we have discussed which is the eslm mod and and and I hope you you'll get sort of the yeast of what expectations can do in in economics so this is going to be a very compressed version adapted version of chapters 15 and 16 but in terms of material mapping into the book those are the relevant chapters and the main idea here is that the islm model as we have described it up to now really it overweights h the present okay and uh and in practice expectations about future conditions play a big role in the decision of all economic actors we we look at you know investors as a pricing and so on but it's also true of consumers it's also true of firms I mean if you think about firms an investment decision we made a function of the interest rate and current output but it's quite clear that the reason firms invest is not because of the current condition it's because they anticipate making profits in the future so it's all about fre expectations and even governments and foreigners when they invest sort of do foreign direct investment they go and invest in a country is a lot about expectations of what the country will do H in in the future I mean political elections for example have huge impact on asset prices and so on precisely because they change what people think for good or for bad about future conditions okay so so expectations is just huge in economics so I want to do things in two steps the first I'm going to revisit sort of the the consumption function and the investment function now taking into account expectations and and motivate how how you should really think about consumption an investment in a more realistic mod than we have been dis discussing H and then I want to embed not the fully flesh out consumption and investment decisions but the flavor of of the role of the future into H the islm model okay and uh and by then sort of you you would have seen you will have seen all that I wanted to communicate at least in in in this set of lectures so let's think about first consumption um and uh up to now we assume that consumption depended only on disposable income you know on current disposable income um but that's not the the way it works and one of the first in formulating ER more or less formally how consumption decisions are really made is Milton fitman and he call it the permanent income theory of consumption meaning what really matters to you in a consumption decision is not so much at your current income but it's what you expect to get on average during your lifetime and and you know you don't want to be moving consumption up and down like crazy you know once you realize sort of more or less what you'll get on average then you should consumption should be related to that concept and and in a sense it's also by thinking in this in these terms you're also drawing a big distinction between things that are temporary and that shouldn't matter a lot for your consumption decisions versus things that are permanent that clearly have a potential to have a much larger impact on your consumption of course you can have temporary things that are very large I mean you win the lottery that's a huge temporary shock but probably you're not going to spend the whole Lottery right away you're going to smooth it over your lifetime in any event okay and and that actually relates to more or less at the same time Milton fredman was at Chicago Franco modani at MIT we will develop sort of the life cycle theory of consumption who says look even at the level of an individual the day-to-day income is not really what pins down the level of consumption because people know early on life that they have a lower income than they will have later on so they will tend to spend and borrow more when they're young then in the middle when they're in the middle of their life cycle you know before retirement they panic and you tend to save more so you don't consume all you have because you know that there are many years ahead of you where income will be lower than your consumption needs so there's also a sense of inter temporary smoothing of your consumption you don't follow income second by second you sort of try to stabilize consumption over time more or less and that means that you know you have to think more about your permanent income but you'll get on average rather than what you get in the short ter so when you start thinking about consumption in those terms what really you think well what really matters then is is total wealth more than income okay how wealthy you are will pin down more or less the consumption you have more than than your current income and there are two senses of wealth one is financial wealth okay all the assets you may have you may expect to inherit or whatever minus the debts you have so very much as we discussed in the previous lecture in the context of asset pricing the expected present discounted value of the cash flows of all the assets you have okay that's your financial wealth uh and that's important you have more financial wealth even if you have no income today you will probably borrow against that wealth to the extent that you can and ER and probably the banks will be more willing to lend to you if they know that you have a lot of wealth H and and so you're going to fund the consumption which is above your current income just because you have more financial wealth okay in fact the very rich seldom sell assets they borrow against those assets to fund consumption that's the that's the way sort of it works there are tax advantages of doing that and so on but but that's the way it works and the very rich often have no income at least labor income all the income comes from from Returns on assets and uh and again we mostly borrow but inent the point there is that what really pins out your consumption is your wealth not not the current flow of income and the other very important concept which is a bigger thing for most individuals is human wealth I mean this is huge for all of you here it's obvious that your current income is a lot lower than what your income will be in the future you have a lot of human capital okay and and so that's also concept of expected present discounted value is you expect to end a lot of income in the future and therefore it makes sense that this stage of your life you borrow now now banks are a little bit more reluctant of lending you against your human capital than lending you against your financial assets it's easier to borrow against a house than against your future income but even there probably you're going to sort of not going to be saving a lot on this time of your life because you know that your income is a lot higher in the future that's that we call human wealth okay and total wealth is just a sum of financial wealth plus human wealth so at its most basic level and those are sorry just to relate to things we did in the previous two lectures those are two expected present discounted value you don't know exactly how much income you're going to get you get a sense of more or less what somebody like you does in the future more or less on average and so on so you have a sense you have an expected cash flow labor income flow in the future you don't know what the interest rates are exactly so you're going to guess more or less what the the future interest rate is and that gives you a sense of human wealth and I know that many of these things you're not calculating every what your human wealth is and then calculate in general consumes 5% of that or 3.5% of that but you know a lot of this is very Behavior it's really ingraining you and and and uh and uh you're probably more likely to spend more if you think that you're going to be doing well in the future but not maybe you're too busy now to spend a lot but you know at some point when you're given the opportunity that that will make a difference Traders very successful Traders they get a very low income so essentially they live out of the income that they get they couldn't afford what they normally afford but they spend a lot more than that income because they expect to get a big bonus and things like that that's income that comes in the future so in principle your consumption should be something that is not proportional to your disposable income but really proportional to your wealth okay and there are estimates of what that that proportionality factor is and that's I said it depends on the type of assets we're talking about that is about 03 that kind of thing okay now in reality that's just it's true this is a better economic concept than just putting income in there but in reality both things really matter so a more realistic consumption function is something that depends on both things for a variety of reasons that maybe we have no savings and really we call even them hand to mouth they leave by the income they're receiv receiving in every single period those those people are not thinking about smoothing consumption over time they're consuming whatever income they receive ER as I said before most banks are not likely to lend you a lot against your expected present discounted value of Labor income okay so you may be constrained in the short your your income you you think about how wealthy you'll be but you also think about sort of your flows the cash flow you're receiving that's also part of of your consideration so in reality it's a mixture of those two things when you look at the micro level at different individuals the composition changes the Richer you are the more this term matters the less this one matters the poorer you are you know this term overwhelms that term that's more or less how it works but on average it looks like that so you know we weren't wrong when we did islm and having the consumption function as increasing in in in in disposable income but I always told you there is a lot of interesting stuff hidden in that little CZ in the you know in that autonomous component of consumption well that lots of interesting things has a lot to do with wealth okay and again this term here is something that captures a lot s of things that are permanent well this one captures a lot cyclical components and things of that kind so interpreted this way you know the reason people during booms even though human wealth may not change much over time Financial wealth typically change in in a boom but it's also the case and in a boom you know wages are higher and all that and people tend to spend more okay even so this captures a lot the temporary component when you're in a in a boom you're going to like it's likely that you're going to consume more for any given level of wealth okay it's temporary but that's what it is what about investment that's a decision by The Firm how much physical capital I'm talking about physical investment real investment not Financial investment the decision also depend on current but particularly on expected profits and when you think about expected profits you need to think about interest rate as well we put the interest rate aside we say okay it's more expensive to borrow if the interest rate is high true but matters a lot more than just that because it matters also through the the the the expected present discounted value of your future cash flows the interests are very high and they're expect to remain very high that means a project that gives you lots of return in the future lots of cash flow in the future may not be worth a lot simply because interest rates are very high so the discounting of the future cash flows is very high in that environment you know Investments that give you return a quick return are worth more than things that give have a pay off very in the very long run so so the decision for example of buying a machine needs to look at the price of the machine right now and then unexpected present discounted value of the cash flows okay so let's think a bit more carefully about about that decision H so suppose you buy a machine for a price let's normalize that price to one the first thing you need to know is well how long will this machine last because I need to know you know for how many years I'm going to get a cash flow out of these things h and a reasonable assumption is is is for most machines it's have some sort of geometric depreciation so meaning you know it's not deterministic it's more or less machines break break break down occasionally but there's certain probability that they break down we typically call that notation in economics is we we refer to that as Delta that's the depreciation probability so if you think in terms of expected value you buy a machine today and you ask how much of a machine I'll have next year well it's going to be a weighted average of zero and one probably but on average it's going to be one minus Delta so it's a machine that Peres sort of the probability of the machine breaking down over a year is 5% then one minus Delta is 095 what is the probability that machine is still producing two years from now well 1 minus Delta square and so on and so forth okay so that's the first thing you know I have this machine and it's likely to give me cash flows over these many years and so on and then I have to know how much I expected profits I expect to get in each of those years and then I need also to know what are the interest rates that are likely to Prevail during the lifetime of the machine and so on so at the end of the day when I calculate I do my little project and I need to decide whether one which was the price of the machine or not is too expensive or too cheap I need to compare it with the spec present discounted value that I have for that machine so here is an example this is a machine that gives the first expected cash flow comes next year I set it up today and I generate profit by the end of the the year or at the beginning of the next year thus expected profits for the first year of the machine which comes at the end of the first year is counted by an interest rate that I know today I know the interest rate for for one year what about the cash flow that I expect for two years from now well that's going to be that's expected cash flow if the M machine is working properly that's the probability that the machine last to the second year and and uh or or you can also assume that the machine sort of breaks down in little pieces every year you get 90 0 95 of the machine in second year 1 minus 1.05 uh Square two years from now and so on so forth so but I also now when I think about the cash flow in the second year I don't know the interest rate for the second year so h i I need to have an expected interest rate here and so on so forth okay because the machine lasts for many many years that's what I get a question by the way I'm saying yeah I need to have expectations here and so on but the truth is that the guy that invests in the machine doesn't need to have that expectation because I could replace this for something that is known today what would that be I'm saying you know when I calculate the expected cash flow when I'm discounting the two years out cash flow I'm going to have an interest rate that I know the one from Time Zero to to the end of the first year but I don't know the interest rate that prevails H from the end of year one to the end of year two that's what I wrote here but I said but there is something in the market that I could look at and that I really know what is that exactly I could use one plus R2 these are onee rates r2t Square okay so so when you have the ter structure when you see all the interest rates a a a firm deciding where invest on not has the interest it needs it doesn't need to have expectations form expectations about the interest rate the market is doing it for them now the guy may choose to be a Trader and decide that I doesn't like the interest rate that the market is is is pricing in but that's a different trade it's not the investment decision of the firm The Firm will have to make a forecast about expected cash flow and so on but that's it from the machine so on okay so obviously the larger disase the more you're going to invest the more machines you're going to buy and so on okay um so so in principle you know a better investment function we remember we wrote an investment function as investment a function of output current output which is said is approxim for sales and then the interest rate well a better concept is that one which does depend on aggregate activity depends on many things but not only today also the ones you expect for the future okay and it depends on the interest rate not only today's interest rate though also the interest rate of the future if I if I look at this expression you know if if even if the interest rate today doesn't change but I expect the interest rate to change in the future to go up that will lower the value of my project okay we have had no space for that when we posit the initial investment function but but here we have that and sorry and this is an increasing function of that the higher is V the highest expected per discounted value of buying a machine given the price the larger is investment now this is in principle in practice current cash flows also matter a lot okay H so in the same sense as in the case of of the consumption function we said yeah in principle it's only wealth that matters but in practice there's lots of consumers that are financially constrained they're have to mouth and so on so current income also matters but for firms the same is true because and and and the main the main reason for that really is Financial frictions in the case of the firm because a firm may arrive with a great project to a bank but the bank may decide that it doesn't trust as much it's or is not as optimistic as the firm is and so on so it may not borrow the firm may not be able to borrow as much as it would want given how optimistic that particular firm is you on its own project I may say no you know I'm going to be more conservative here since I'm lending you the money and one way that firms use actually to get around Financial constraints is simply by returning retaining their retaining earnings meaning they they generate a cash flow they save firms Save A Lot by the way you know companies like apple and so on save an enormous amount and huge deposits us treasuries and so on so forth in the case of Apple is not to relax Financial constraint although it is has something to do with being opportunistic ER having the opportunity to buy things that are in distress but many firms especially smaller firms have deposits and cash flow and so on mostly because uh if they get a good opportunity they they may face Financial constraint so if current activity is high sales are high firms are going to be less likely to be financially constrained and that's the reason current profits also end now current profit is going to be an increasing function of output over over Capital that you know for any given level of capital if output goes up that's going to generate more profit and so we can write our in mment function a little bit like we had in the in in in in the earlier lectures but now we put VT here why YT and the interest rate and interest interest and future output and future interest rates enter all through the ter here and again investment here is increasing with respect to VT and it's increasing with respect to YT okay so that's a far more realistic model so you go back tolm and and and uh and put this type of consumption function and investment functions and they're going to make a lot of sense again the concept of something persistent persistent things should matter a lot more than temporary things okay so naturally if if you expect profits to remain high for a very long period of time that machine is going to be worth a a lot more than if you only expect the machine to be very profitable for only one year okay and and and and and and so anything that's likely to be perceived system is also likely to have a much larger impact there are important exceptions but I'm not going to get into that now and the same is true for interest rates know if I expect if interest rat are high today but we expect them to go down in the near future then that's not going to affect a lot the discounting of very future profits but if I if I interest rate go up today and I expect them to remain high for a long time that's going to affect a lot more the present value of profits and therefore it's going to depress investment a lot more in fact central banks much more than playing with the current interest rate they play with your minds that's what they do they they are always telling you stories for why interest will remain high for why you know they don't want they want they only control an interest rate that is is an overnight interest rate really but they and with that nobody cares about the overnight rate except for some Traders out there no but since they want to influence aggregate demand that is they want to influence consumption and investment they need to convince you that this stuff will last for some time because otherwise it would be relevant because if you want to reduce aggregate demand you want to cons convince firms and households and so on that that the interest will remain high for a while otherwise you're going to get very little effect out of that one of the pro problem s they're having now actually you know with the FED is trying to cool the economy is that they keep hiking rates but the loan rates have began to decline already that's a problem you know they would like you not to believe Market not to believe that that will happen and that's that's a that's a big issue okay so let's think about this islm with expectations so what we said is you know what really we after in the slm model remember slm model is a model in which aggregate demand determines output and that's what happens in the short and the biggest components of aggregate demand as aside from the government which is something that moves more or less okay different behavioral functions we're not talking a lot about that here but the big drivers are consumption and investment those are at least the private sector drivers of aggregate demand consumption and investment and we have said now is that you know that H human wealth is affected not only by current income but future after future after Labor income future real interest rate that affects human wealth that affects consumption future real dividends plus future real interest rate affect the value of stocks that's a very important Financial well H future nominal interest rate affect the price of bonds so all these rates enter here the the price of nominal bonds ER for firms future after tax profits affect expected present value future real interest rate affect H also this expected present value okay so there's a lot that says future in this column here that enters into the consumption and investment decisions that we care about that's what I show you in in the previous slides so remember the basic islm model we wrote it this way output was determined by agre demand and close economy forget all that fully sticky prices and uh and we wrote consumption as this functions so aggregate demand was increasing in output and government expenditure decreasing in taxes and decreasing on the interest rate so a shortcut so what I want to do now is is give you a shortcut to integrate this views of expectations or the concept of expectations into this very basic isnm model Okay so think of now of aggregate demand rather than just being a function of current variables be also function of the same variables but in the future okay so aggregate demand is a function as before of current output current taxes current interest rate current expenditure but also function and with the same signs of future output so it's increasing a is increasing in expected future out output is decreasing unexpected future taxes is decreasing in expected future interest rate is increasing in expected future government expenditure although I'm not going to play with this here because of something very specific I'll discuss later on okay but so that's the shortcut okay the limb is going to be the same as before so what I want you to think about now is a mod that is like the one you had before H with the same LM but now that yes is a little bit richer it has more parameters these are parameters because I'm going to determine today's output uh but it's going to be a function of more parameters and all these parameters are essentially the same variables that we worry about today but are the variables we expect of those are the values we expect for those variables in the future and again with the same sign so if output so if taxes go up today aggregate demand will Decline and output will decline but if I expect future taxes to go up as well then that's going to the price aggregate demand even more okay that's the type of logic I want you to devel so that's the way our model will look so this is the the is in the same space I had before know interest rate and a output current output I'm trying to determine current output um but now I have lots of parameters that I didn't have before I have a you know things that shift the yes to the left if taxes go up today this will shift to the left do you think it will shift to the left more or less than it did in lecture three or four so suppose we increase taxes by you know 10% will that reduce output more or less than when we have the static islm mode yeah the expectation okay I haven't moved these are parameters for my curve so I I don't get the right to move them less no less because now we said it's not only the present that matter it's a combination of the present and the future so if if if I that means that anything that is just the present will matter less than in the in the past otherwise you see that and suppose we had a two period model and and I give equal weight to the present and the and the and the and the future then I'm going to cut the effect of the present in half that's I'm exaggerating there that's more or less the logic okay um so so the you you correctly said well it depends on whether I expect the future taxes to change or not fine that tells you there a difference between changing temporarily the taxes and and and and and and increasing taxes permanently permanently here means for the two periods so what happens with this curve so we decided that increasing increasing taxes reduces this to the left by a smaller amount than in the past what happens if you expect taxes to increase in the future which wealth goes down human wealth in particular your human wealth will go down because you expect your disos able income to be taxed more in the future so that will also shift the yes to the to the left okay and that's the reason that if you have a permanent expected permanent increase in taxes today and next year then that gets us back to the type of shift in the yes that we had when we had the static model okay it's the sum of the two it's a permanent so permanent changes will behave very similarly to the way sort of the the the static model work permanent okay in a sense that model was a very good summary of permanent changes permanent changes in taxes permanent changes in interest rate and so on ER changing go on expenditure same same idea it will also move aggregate demand to the right um but will it do it by more or less well think how government expenditure worked in in in the basic mod in the static model it increased aggregate demand and that then led to multiplier and we got a lot more income and so on now if we expect this govern to be temporary that multiplier also will be a lot smaller because yes it will increase income but people are not going to spend all day income today that depends on whether they expect future income to also go up as well or not okay and that's the reason that it is again it us expect this going expenditure to go up permanently and nothing else change then you can expect income to go up in the future as well and then you get more or less the same effect now that's a trick experiment because if you and it's very Rel for today if you govern exp goes out permanently it's unlikely that the central bank will remain and and move and so you also have to start thinking well where will the Central Bank do okay and that takes me to this variable here okay this variable here so well before I discuss this variable actually let me point out that it's not accidental that I made this curve a lot steeper than it used to look I mean this looks like a pretty steep I curve which is a way of saying that a given change in interest rate now has a very small effect on current output okay much smaller than we have in the static model and the reason is again this permanent investor transitory if you expect the interest rate to decline only for today and that's it that's not going to have a very large effect on consumption it's not going to have a very large effect on on on investment for the interest rate de client to have a very lasting effect a very large impact on consumption and investment it has to affect the expected present discounted values in a meaningful way and for that you want those changes to be more or less permanent persistent that you the private agents think that this change in the interet will be significant so so if they if so it good to separate two things so if the if the if the if the FED cuts the interest rate but doesn't persuade anyone that that that this rate will remain low in the future then it will is going to get very small effect on out however if you convince people that that there will be future changes that the the rates will remain lower for a long time that means that this is now will shift to the right okay that's what we have here so you have to distinguish is a move when the FED cuts the interest rate you get a small movement along the curve but if the fed persuades you that this a long lasting cut in interest rate then they yes shift to the right and you recover sort of the power of monetary policy monetary policy depends a lot on its ability to convince people that things will remain in the direction this they want okay if they fail there was a famous episode in US monetary policy during the times of Alan greensman Alan gensman is known as one of the biggest Central Bankers that the US has had at least in recent memory H he went through a period which was called was known as the Greenspan conu that is the economy was overheating he kept hiking interest rates but the long rates kept coming coming down so he couldn't cool off the economy there was no way around that because they couldn't persuade the markets that that this would be a longl lasting effect the reason was a different one it was not that you couldn't persuade the market it happens that at the same time you had china sending massive Capital flows to the US and so so but the point is that the FED had couldn't move the interest rate in the long run and and so it was very ineffective in terms of his monetary policy so again expectations matter quite a bit so let's think about our well this I was just discussing so monetary policy you know I should have this so you're not going to do a lot if if unless you persuade people that that the interest a will remain low for quite some time and notice that there like here this everything comes comes into line because if the FED convinced that the interest rate will be lower in the future as well then you get the yes to shift to the right but if inter will be low in the future that means output will be high in the future as well which further shift that yes to the right okay if you convince the markets that and the markets and cons consumers households and so on that that you're cutting interest rate and that with that you'll be successful in creating a getting out of a recession for example in the future that also increases human wealth expected percent value of cash flows of of profits and so on so forth because you you giving sort of better economic conditions in the future again for central banks is a lot like er it's it's mostly about expectations management that's the business of a central bank really I don't know how many of you are soccer fans but but um there was a famous story of Marvin King Marvin King was also one of the biggest Central Bankers that the UK has had fairly recent and he described he's British L nowadays and he described um good monetary policy very much like maradona's go score against the UK England in in in in in some World cap I don't remember which one and it's essentially Maradona picked the ball you know in his side of the field and he essentially RW a straight line H to the goal and a score but but he persu Ed everyone around to move away from his path and that was a successful strategy and central banks do a lot of that lots of talking and you know at the end of the day the true actions of moving the interest rate are the least important part of really the a monetary policy strategy fiscal policy can be quite tricky here actually um so we know that that you know that the fiscal contraction a reduction in government expenditure ER if you just think about the basic islm model what happens it's a fiscal contraction you reduce go in expenditure that will certainly reduce output all the slm you reduce govern expenditure just shift the to the left and that reduces output when you have expectations things are a little trickier because it depends a lot of what you expect the central bank to do in the future and it expects a lot on what you know the private sector how the private sector responds to that so for example if you have a a um fiscal contraction that leads to an anticipation of a big cutting interest rate in the future that may be expansionary or is it can ofset quite a bit of the fiscal contraction side and in fact most of the time when you have episodes of fiscal consolid solation H in environments that are not of very high distress financial crisis and so on H it typically sort of how successful that is depends a lot on whether people expect to be a sort of implicit deal between the central bank and the treasury okay if people expect that that fiscal contraction will come with much looser monetary policy conditions then the fiscal contraction is not as contraction as could be otherwise and if for some reason you know know the fiscal deficit sort of the perception of fiscal deficit was really dragging the economy down because people didn't know when there could be a financial crisis in the near future and so on then you can get a situation in which the contraction fiscal contraction today improves the perception of a stability of the country in the future which in turn may increase expected future income and and and be expansionary so you know most of the fiscal contractions are contractionary but there are some famous of what they of called expansionary fiscal contractions one of the most classic cases was known case is Ireland in the late 80s Ireland had massive fiscal deficit and and and all they talk about was fiscal deficits okay because they had very large fiscal deficits related to GDP and and the economy was really sort of stagnating and going through cycles and so on and it was all around this fiscal deficit and so so towards the late 80s they began a a deliberate plan of of U of fiscal consolidation fiscal consolidation means essentially reducing the deficit and they were very successful as you can see but contrary to expectations at least output growth did not declin actually they finally sort of they had a very good period like that so that's that's all it was all about expectations notice that unemployment though did go up okay so despite the fact that you know you got more unemployment and so on output began to grow okay because firms began to invest more consumers became more optimistic in fact you see the house household saving rate declined dramatically this all consumption and investment did that okay consumption and investment people consume more invested more because sort of everything looks a lot better they have been struggling with this for very long and they finally they had gotten that behind now this example is Abus by almost anyone that wants to cut taxes and things like that but but um um no sorry by almost anyone that wants to cut fiscal expenditure um but there are experiences there's a whole spectrum of experiences but in situations that as Extreme as this one it it clearly prove to be very effective so that's that so let me take a stock so so the role of this lecture was ER to say something that I sort of should have said earlier on but I would have been a bit confusing so I decided not to talk too much about it but it's very important expectations plays play a central role in economic in particular H expectations influence aggregate demand and for us this course was a lot about aggregate demand except for the part on growth it was a lot about agre demand now we did talk about expectations but we did talk about expectations mostly in the context of agre Supply remember when we talk about the Philips curve we did have expectations because weight setting was a function of expected prices and so on so forth so we did talk about the role of expectation Supply very quickly uh but I think a much bigger role is play of expectation is really on on aggregate demand and certainly on asset prices but aggregate demand asset prices are connected because agre asset pric is about wealth and you know and and the value of future cash flows which are more or less the same drivers as for investment and and and and consumption and finally I want to say the many times when you find sort of episodes of fiscally even sometimes monetary policy that are counterintuitive is entirely due to the the expectations part so this case of fiscal consolation is not that the C the cutting in fiscal expenditure was expansionary that was not that was contractionary but it was overwhelmed or offset more than upset by the out the Improvement in the Outlook that that uh that you had and that also happens with monetary policy countries that have high inflation problems and so on er er sometimes ER get and they have to go through dramatic tightenings and so on yes most of them get sort of very short lead recession but sometimes they're very short lead recessions because eventually sort of the the the reduction of the in the instability caused by by high and unstable inflation sort of ends up dominating any direct contractional effect of monetary a e