Wednesday, November 18, 2015

Monetary Policy and the Wisdom of Learning to Swim

Very Smart Scott Sumner:

The high points:

1. Monetary policy is sufficiently complicated that it's hard to have a coherent discussion, since many people can't even agree on what "loose money" looks like.  (eg, was money tight or loose in 2009?)
2. He defines "loose money" as causing the interest rate to fall faster (or below) the Wicksellian rate.
3. Claims too much focus on what to do if you're already on the zero lower bound, because we should be pursuing policy that avoids such an outcome: "I think that’s a really bad way of thinking about the problem, like discussing what to do if the bus is flying over the guardrail."
4. That's good as far as it goes, but, uh...
Or, to carry on the metaphor
Now that the bus is pretty much in the river, swimming lessons seem like a prudent idea.

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