Isn’t or Shouldn’t?

Sumner argues that if Krugman’s claim is true that the Fed is too conservative, that they will do whatever to curb inflation, then fiscal policy won’t work either. Fiscal policy moves the AD curve right, but the Fed will just move it back left. Sumners argument only works if policy is not limited by the […]

“My beef with Scott Sumner” OR “Dude, you’ve already won the debate!”

Pleasantries: brilliant blog. Anyone remotely interested in monetary policy, a.k.a. “the only remotely possible technocratic method to manage an economy”, should read it. Ok. Prof. Sumner is absolutely right that the Fed made a mistake in fall of 2008. This is illustrated by the sharp decline in inflation expectations as illustrated in this graph (stolen […]

What is progress?

I’m a political newb, but even I can see why progressives would concern themselves with “stagnating” middle class wages rather than poverty (e.g. here). Poor folks don’t vote, but if you can convince the middle class (which is like everybody if you ask ‘em) they’re getting screwed and you’ll fix it, then you’ll get elected. […]

Prediction: no William Wallace speeches from Ben

In the next two years — before the memory of this recession fades, but long enough from now that it doesn’t risk unanchoring expectations — Ben Bernanke will begin peppering his speeches and testimony before Congress with references to some form of history contingent policy (e.g. price level or nominal output targeting, state-dependent inflation targets, […]

Costs of discretion

In the previous post, I argued upping the inflation target would have no impact on unemployment and it would risk unanchoring inflation expectations. If expectations became unanchored we would be trading off a permanent increase in expectations for a temporary decrease in unemployment. Assume we gave half of those currently unemployed a job, output would […]

I must be crazy

Because the rest of the world seems crazy. Even Cowen and Sumner seem to think changing the inflation target right now would be a good idea. First, does the Fed have an inflation target and are expectations anchored, i.e. are they equal to the target? Yep and yep, see the graph Prof. Delong put up. […]

Accelerating output and prices equals additional stimulus?

The Fed made a mistake last year. No doubt the Fed chairwoman 70 years from now will give a speech admitting fault for the “Great Recession”. Fine. It does NOT follow from this that we need more aggregate demand stimulus now. Obvious, right? Now, unemployment is high. Empirically, we know two things about unemployment. It […]

A model

Blanchard and Gali (2008) incorporate unemployment into the standard model. They have some interesting findings, but this one stuck out: This is the response of the unemployment rate over time to a 1% decrease in productivity of the economy (a “real” shock) WHEN the Fed has a inflation-only target (i.e. it doesn’t care about unemployment). […]


The problem with most stories is that they’re just words. With just words its easy to sound like you’re making sense, that the one thing you said leads to the other. For example, Ryan Avant says we need more stimulus and so does Scott Sumner (e.g. ?). So, we have increasing inflation and GDP. Understanding […]

The CBO says… moooo

I imagine this is how it worked for court alchemists. The CBO says that it has been ordered to give a prediction of the effect the ARRA and so it has. The Economists suggests this reverse crystal ball gazing is valid because its model driven. Alchemy was model driven: if there is a Philosopher’s Stone, […]