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Lars Christensen

Lars Christensen

International economist, Money Doctor, Founder of Markets & Money Advisory, Research Associate Stellenbosch University [email protected] +45 52 50 25 06

Articles by Lars Christensen

Paper: Financial regulation, demand for ‘safe assets’, and monetary conditions

October 12, 2021

I have a new paper out at Center for Corporate Governance at Copenhagen Business School.

Here is the abstract:

In the aftermath of the economic and financial shock of 2008-10, the wider policy debate has often turned on why inflation has remained very subdued and interest rates and bond yields historically low despite a marked drop in interest rates and a significant increase in the money base in the US and the euro zone.

In this paper, we try to explain these developments with a simple model which highlights the importance of growing demand for ‘safe assets’ (government bonds). By its effect on the demand for money, this shift is inherently deflationary. Expansion of the money base is a natural and necessary consequence of inflation-targeting central banks ‘doing their

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10 years of Market Monetarist thinking

September 13, 2021

On this day ten years ago I published a Working Paper on Marcus Nunes’ blog “The Faint of Heart” with the title “Market Monetarism – The Second Monetarist Counter-revolution”.

This is the Working Paper in which I coined the term “Market Monetarism”. Little did I know that over the following decade monetary scholars as well as central bankers would refer to market monetarism as a school of thought and little did I know that market monetarism would have such an impact on monetary policy discussions globally as it indeed has had.

I strongly believe that market monetarist thinking had a strong and positive influence on the conduct on monetary policy in particularly the US and the world is a better place for that reason.

I coined the the name of the school and I think I played a

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The Fed’s Average Inflation Target (AIT) will soon tell the Fed to aim for DEFLATION

July 13, 2021

Back in April I warned that given the massive expansion of the US broad money supply we could very well be heading from double-digit inflation in the US later in 2021 or 2022.

At that time inflation was at 1.6% (March). Today we got inflation for June – and now inflation is at 5.4% and core inflation is at the highest level in 30 years.

So far my inflation simulation seems to be pretty much on track.

But that is not the topic for this blog post – at least not the main topic. Rather I want to discuss what the latest inflation numbers imply for Fed policy going forward.

Back In August 2020 at the online Jackson Hole conference Fed chairman Jerome Powell announced a revision to the Fed’s long-run monetary policy framework by re-framing this goal as an average inflation

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Steve Horwitz, Mensch, economist and classical liberal scholar. A last farewell.

June 27, 2021

One of my great intellectual heroes is no more. Economist and classical liberal scholar Steve Horwitz has died.

Steve lost the fight to cancer. Far too young.

Steve and I was in contact over the years and he was always an extremely kind person and even when we disagreed (which wasn’t often) he always remained a gentleman scholar. A real Mensch.

Steve Horwitz was a great economist and particularly is writing on monetary disequilibrium inspired me a great deal. He was an Austrian and I am a monetarist, but we very much agreed on how to see monetary matters – both of us were inspired by the great economist Leland Yeager.

In recent years I have kept in contact with Steve though social media and again and again I have found myself in agree with Steve’s take on current

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Heading for double-digit US inflation

April 29, 2021

I have spend a lot of my time since 2008 arguing that US monetary policy was much less expansionary than most people thought and has been arguing for a more aggressive response from the Federal Reserve to combat deflationary pressures.

Furthermore, I have last year welcomed the Fed’s policy respond to the lockdown crisis – see for example here – as I feared a repeat of the deflationary shock of 2008-9.

Furthermore, even though I have been somewhat worried about the sharp pick up in US broad money supply growth I for while was of the view that breakeven inflation rates were quite low and as a consequence we should not worry too much about inflation.

However, over the last couple of months I have become more and more convinced that particularly elevated stock prices,

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Post-Covid Recovery – fast, but inflationary

April 23, 2021

I have become substantially more worried about inflation than I was last summer and I now believe we will see a very significant increase in inflation in the US in the coming months.

I will write more on that in the coming week, but until then have a look at this presentation that I did recently at the Danish Chamber of Commerce in Lithuania on April 15.

Watch the presentation here.

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R* strikes back: The Fed will hike sooner rather than later

February 26, 2021

The Federal Reserve’s mandate is clear – ensuring the maximum level of employment while at the same time ensuring price stability.

Over time the Fed’s interpretation of this mandate has changed, but we can maybe get a bit closer by saying that the Fed has an ordering of the dual mandate.

First the Fed wants to insure that inflation (inflation expectations) over time is close to 2%.

Second, once this is the case the Fed will try to “push” economic activity in the “right” direction – meaning that the Fed will ease (tighten) monetary conditions if US unemployment is above (below) the structural level of unemployment (NAIRU).

This of course also is what is reflected in for example the traditional Taylor rule, where the Fed ‘sets’ its policy rate – the Fed Funds rate – to

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Tweeting on Central Bank Digital Cash

January 1, 2021

As part of my on-going research at Copenhagen Business School on the future of the Nordic banking sector and monetary policy have been researching the idea of Central Bank Digital Currency or rather as I prefer to Central Bank Digital CASH (CBDC).

Tonight I have been tweeting on some ideas and views regarding CBDCs and as with private cryptocurrencies it is not really the technology, which interests me, but rather the monetary aspects of CBDCs and what the importance for the conduct of monetary policy and the monetary transmission mechanism would be. And of course the impact on the wider economy and on the banking sector in particular.

You see my Twitter thread on the topic here (including a lot of typos…).

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The clash of two Chicago school ideas

December 11, 2020

The Economist magazine quotes me on the important topic of whether we are going to see a spike in inflation or not, but at the same time also illustrates what market montarism really is about:

In the aggregate, though, investors seem unconvinced. The inflation expectations which can be derived from prices in financial markets have recently picked up a little thanks to the good news on vaccines and the prospects for a rebound in the world economy. But they still suggest that investors think next year’s inflation is more likely to be below the 2% central banks target than above it (see chart 3).

Lars Christensen, a Danish economist, points out that this means there is a “clash” between the two best-known economic theories associated with the Chicago school. Milton Friedman said

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Covid-policies should focus on ‘health fundamentals’

December 2, 2020

The number of Covid-deaths per capita is converging towards a level which essentially is determined by what I have called ‘health fundamentals’ – or simply X*.

Europe and the US have different health fundamentals – Europe is ‘older’ and the US is more obese. Over all I would actually expect more deaths in the US mostly because of obesity, but it is clear that Europe is caching up fast now – X (actually mortality) is moving fast towards X*. Despite new restrictions being put in place everywhere.


The effect of these restrictions (as well as voluntary behviourial changes) might be to ‘postpone’ the ‘convergence’ towards what health fundamentals ‘dictate’, but not for long.

It is comparable to what economists call the

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Swedish mortality in 2020 – It’s a lot better than you might think

November 26, 2020

Sweden has been the ‘outlier’ in terms of handling the global Covid-19 pandemic as the country’s health authorities have relied on a more laissez faire approach which have relied on the common sense of the Swedish population rather than on draconian government measures such as lockdowns and mask mandates.

In that sense Sweden has been different than basically every other country in Europe and Northern America.

Consequently, Sweden has also become the benchmark case to compare other countries to.

Unfortunately from day one of this pandemic it has all been about counting the number of people who have died from or with Covid-19. The countries with the least Covid-deaths are the “winners” – at least according to the media, commentators and politicians.

I must say I have

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The Czechs and the Swedes – the tale of two Covid-strategies

October 17, 2020

This is the number of new daily deaths from/with Covid-19 in Sweden and the Czech Republic.

Source: Here.

The two countries are similar in many ways – the population is just over 10 million in both countries; the average age is around 41 and the number of elderly people as share of the population is also pretty much the same (3-4% of the population is over 80 years old).

Life expectancy in Sweden, however, is 82 years while it is 79 years in the Czech Republic.

The immigrant population in Sweden is much larger as share of the population than is the case in the Czech Republic.

These two factors make it more likely that Sweden will see more Covid-19 deaths than the Czech Republic as we know that the mortality form Covid-19 increases sharply for those older than 70 years

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ONE factor explains most of the differences in Covid19 deaths across US states

September 22, 2020

Since the outbreak of the Covid-19 pandemic I have closely been monitoring the data for the number of deaths and infected across different countries and I have spend considerable time trying to estimate statistical models to explain variations in deaths and infects across different countries.

It quickly became clear to me that relative few factors could explain this variation and back in April I wrote a blog post in which I claimed that ONE factor could explain most of the variation in Covid-19 deaths across countries.

That factor was age or rather the number men older than 80 years as share of the male population.

There really wasn’t anything overly surprising about that as it fast became clear that very few young people or children died from Covid-19 and the average age

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The Fed just de facto increased its inflation target to 2.5%

August 27, 2020

The long awaited update of the Federal Reserve’s Monetary Policy Strategy has just been announced.
Here are the key points:
On maximum employment, the FOMC emphasized that maximum employment is a broad-based and inclusive goal and reports that its policy decision will be informed by its “assessments of the shortfalls of employment from its maximum level.” The original document referred to “deviations from its maximum level.”
On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to

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Presentation: Getting practical about data and analytics in basketball

August 13, 2020

If you are hear about monetary policy or international economics this post is not for you.
Instead this is about ‘sports analytics’ or rather about ‘basketball analytics’.
This morning I was invited to give a presentation on the use of data and analytics at the Filipino basketball network HOOP Coaches International.
You can watch my presentation here:

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Presentation: Will the Covid-19 crisis be inflationary?

August 11, 2020

On July 27 I gave a Webinar-Presentation at Buckingham University’s Institute of International Monetary Research on the Covid-19 crisis and whether this crisis and the particularly the policy response to the crisis will be deflationary or inflationary.
You can watch the presentation here.
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The shortest recession ever – unemployment will be below 6% in November

June 5, 2020

After US unemployment rose to nearly 15% (in April) I wrote a blog post forecasting unemployment would be back below 6% in November.

That got me a lot of attention and a lot of suggestions for bets on the numbers (I have accepted a lot of these wagers).

Today, we got the US labor market report for May. It is a massive confirmation on my bullish call on the US labor market.

US (non-farm) employment rose by 3 million in May and unemployment dropped to 13.3% in May from 14.7% in April. This is much better than the consensus expectation of an increase in unemployment to 19%.

The US recovery is well underway. The markets have been right and the-world-is-coming-to-an-end-pundits have been wrong.

Meanwhile market inflation expectations continue to rise as well and even

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Why have epidemiological forecasts been so wrong and what to do about it

May 19, 2020

Why have epidemiological forecasts been so wrong and what to do about it
If we look at the forecasts, we got from epidemiologists initially in the Covid-19 pandemic it has turned out that they have massively wrong. While tragic the number of people who has died in this pandemic has been much lower than forecasted.
The reason given by epidemiologists then is that that is because of interventions – lockdowns. But then you made the wrong kind of forecast – you forgot to forecast what would happen IF lockdowns were implemented.
Furthermore, how do you explain the numbers in South Korea, Taiwan and Japan? There were no lockdowns (until recently) and we haven’t seen a massive death told, which was forecasted by the kind of epidemiological models used for example by the epidemiologists at the

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Presentation on the US economy and markets (in Danish)

May 12, 2020

Warning – this is in Danish.
Her til eftermiddag har jeg haft fornøjelsen for første gang at optræde på SpeakerBee. Temaet var markederne og økonomien – primært i USA.
Jeg taler blandt andet om udsigterne for væksten og arbejdsmarkedet i USA – jeg er meget optimistisk – og for det amerikanske aktiemarkeder, hvor jeg er knap så optimistisk. Hør og se, hvordan det hænger sammen her.
Hvis du vil have mig ud til en præsentation eller arrangere et webinar eller lignene, så kontakt mit speaker agency YouandX her.

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When Americans vote in November unemployment will be below 6%

May 10, 2020

Friday’s US labour market report rightly got a lot of media attention globally. The spike in US unemployment to 15% surely is historical and tells us quite a bit about just how big a shock has hit the US and the global economy.
However, where most commentators are wrong is assuming that this has to be seen as a normal recession. I on the other hand would argue that this has little to do with a normal recession. In fact I am increasingly thinking that the use of the term ‘recession’ is a misnomer in relation to this crisis.
Back in April I argued in my blog post ‘All set for a fast recovery after the ‘Great Lockdown’ argued that this crisis primarily should be seen as an unplanned and very unpleasant ‘vacation’. 
The IMF has called it the ‘Great Lockdown’ and I find this term very

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The Corona Crisis – a Scandinavian perspective.

April 28, 2020

Today Swedish journalist Nathalie Besèr and I have had a talk about the economic and political perspectives on the corona crisis from a Scandinavian perspective.
We among other things talk about the different policies in the Scandinavian countries and look at the economic consequences of the crisis.

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ONE factor explains most of the differences in Covid19 deaths across countries

April 20, 2020

As an economist I am not happy about going into having strong views on the causes of why people die from Covid19, but at least I can have a look at correlations.
It has been very clear for some time that very few people younger than 50 years old die from Covid19.
In fact the average of people dying with Covid19 have been around 80 years in most countries and men are more likely to die than women.
These simple facts made me think – how much of this can explain the different mortality rates we observe across countries?
Why has so many people died in Italy and Spain, while mortality rates have been much lower in for example Scandinavia? Similarly why are mortality rates so low in most developing countries?
Can the age composition explain this? The graph below give us the answer.

In the

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All set for a fast recovery after the ‘Great Lockdown’

April 18, 2020

In 2005, Hurricane Katrina hit New Orleans in the US state of Louisiana. The hurricane caused enormous material destruction and about 2,000 people perished.
While Katrina obviously cannot be compared to Covid19 in terms material devastation and death it nonetheless is comparable in terms of the sudden the “shutdown” of the economy.
Katrina was a very clear case of a supply shock. Production facilities were simply shut down. And in the same way as today, it happened from one day to the next.
But nothing really had happened to the fundamentals of the economy – this to a large extent is also the case in terms of the Covid19 around the world.
Katrina was a huge, but very short-lived economic shock
If we look at how things were going for Louisiana’s economy in 2005-6, then you will see that

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A talk with the Icelandic Minister of Finance on the corona crisis

April 6, 2020

Everyday at 1000 CET I do a Facebook Live Update on the economic and financial consequences of the corona shock.
It is normally in Danish but today I did it in English because I had invited the Icelandic Minister of Finance Bjarni Benediktsson to join me for a talk about Iceland’s response to the corona shock.
You can watch the talk here and you can follow me on Facebook here.

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Well done! Decisive actions from global central banks

March 15, 2020

Sunday night European time global central banks under the leadership of the Federal Reserve moved decisively to calm down market fears of eroding global dollar liquidity and to ease global monetary conditions.
See my comments on the this decisive and positive policy action here.

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A (Keynesian-Monetarist) proposal to shock the euro zone out of the crisis

March 4, 2020

Fundamentally I think central banks have full control of nominal spending and therefore also inflation. Therefore, to me there is no liquidity trap.
However, there can be a mental or an institutional liquidity trap if for example a central bank refuses to take the necessary steps to permanently increase the money base.
I believe we are now in such a situation in the euro zone and therefore I think it is now time to suggest something I never thought I would have suggested – significant keynesian style (with quite a bit of market monetarist influence) fiscal “stimulus”.
So have a look at what I wrote on Twitter earlier today:

I know this is radical and maybe not expected from me, but the seriousness of the global ‘corona shock’ and the ECB’s refusal to act appropriately necessitate

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Robert Hetzel on the monetary response to Covid19

March 3, 2020

There are few economists that have had a bigger influence on my thinking about monetary matters than former Richmond Fed economist Robert Hetzel.
Bob is not only one of my biggest intellectual heroes, but also a very a good friend and I am therefore extremely happy that he has allowed to publish some of this insights and thoughts on Fed’s 50bp ’emergency’ rate cut today.
Lars Christensen
Fed and Covid19
By Robert Hetzel
Cutting the funds rate just before an FOMC meeting sends a strong but not necessarily appropriate message.  The fact that the cut came without the discussion from the regional Bank presidents of their respective regions that would come routinely at an FOMC meeting suggests that the FOMC was responding to the decline in the stock market.
That turned out badly for the Fed

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