In what universe would growth after QE III falsify the liquidity trap and no growth not falsify market monetarism?
I mean, you could always have an "it wasn't enough" response, but if there is no growth that seems pretty damning to me.
And how would growth after QE III falsify the liquidity trap at all? Krugman (1998)? Eggertsson and Woodford (2003)? Woodford (2012)? Bueller? Bueller?
Am I crazy or something? What is Ryan Murphy talking about?
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In what universe would growth after QE III falsify the liquidity trap and no growth not falsify market monetarism?
ReplyDeleteProbably the same universe where low CPI inflation after stimulus falsifies Austrians, but crappy economy after stimulus does not falsify Keynesians.
As far as Ryan Murphy on the liquidity trap, I think what he's saying is that the conventional Keynesian argument is that bond purchases *today* don't *directly* do anything; that's why you need fiscal stimulus. The only thing that the Fed can do is to get people to expect higher price inflation in the future. So the Fed promising today to buy bonds, isn't the same kind of thing as if they had announced "We'll buy a bunch of bonds next year."
(I'm not defending Ryan Murphy's critique of the liquidity trap, I'm just explaining where I think he's coming from. And admittedly, the Fed was announcing purchases today and into the future, so this is hardly a clean test.)
That is a bad universe. I'm glad we don't live in it.
DeleteGranted, low CPI inflation does falsify claims of high CPI inflation :)
I don't think it can be said to falsify Austrians.
re: "So the Fed promising today to buy bonds, isn't the same kind of thing as if they had announced "We'll buy a bunch of bonds next year."
But the whole beauty of this announcement is that it is not a fixed amount that we are buying today. It is open-ended.
Right, I'm not saying it makes much sense, I'm just explaining where I think he might have been coming from. He is taking the Keynesian position to be, "When you're in a liquidity trap, Fed purchases of bonds no longer works."
DeleteApart from the fact that Ryan Murphy is using the Bayesian approach to probability (something Dr. Michael Emmett Brady would not approve of given the special case of subjective probability), this looks like a good post by him. On the bright side of things Daniel, at least the market monetarists argue for an intervention rather than no intervention whatsoever!
ReplyDeleteBlue Aurora, I disagree with every aspect of your comment.
Delete(1) I think Bayesian approach works with subjective as well as objective probabilities. In fact, I'm not sure I even get the distinction you are making in this context.
(2) This is a bad post by Ryan Murphy.
(3) It is a dark side of things that anybody would applaud the Fed announcement.
1.) Consult Dr. Michael Emmett Brady, who has read the literature concerning different schools of thought on probability.
Delete2.) It's not that bad, as it still endorses intervention.
3.) I'm not a monetarist of any kind, and doing something is better than doing nothing.