Greg Mankiw says we're almost out of the liquidity trap.
This graph also offers an opportunity to ask a question of tight money people: I am entirely willing to accept money was too loose in the 2000s. Not only am I "willing to accept it", I've said it. I'm not sure it's the primary explanation of what happened, but you can throw it on the pile of things to talk about. But how in the world can anyone look at the 2000s and say "monetary policy was too loose" and not look at monetary policy since 2007 and say "monetary policy was too tight". If you're anything like a Wicksellian, I don't know the mindset that produces that view. What conception of the natural rate of interest makes it higher than the actual rate of interest in both 2000-2007 and 2007-2012?
UPDATE: That is, of course, if there are any tight money people left. Somehow in the fall of 2011 it seems like every Austrian in the blogosphere turned into an avid supporter of maintaining nominal spending. I'm still not sure exactly how that happened. I'm still not even sure if it did happen or if it's just a way to diffuse blogosphere criticism.
Turning a probability vector into a state
1 hour ago