Another group that isn't monolithic in its call for tight money, but is still a major contributor to that position is the Austrians, of course. It's an Austrian suggestion that I have to make, to any enterprising graduate students that are listening. Some Austrians - following the po-mo fork in the road that hit that school of thought a couple decades ago - rely on a more impressionistic, narrative case against monetary (and fiscal) stimulus, of course. But before all that came along Hayek offered a clear, neoclassical model that provided an argument for being concerned about the real distortions of expansionary monetary policy. The Hayekian model has had some innovations. Roger Garrison most notably has put the argument in modern language and added a production frontier to it and (in some versions) even a Keynesian cross.
The shortcoming of the Garrison version of Hayek's model is that it doesn't really catch up to the standards of modern macro in terms of formality, microfoundations, or rational expectations (even of a weak sort). A lot of Austrians like to think their ideas aren't given much credit because all those mean mainstream economists are just looking for political glory. This is stupid. And it's going to keep you in backwaters if you convince yourself of this and nobody is going to like you personally if you accuse them of this (to quote Tyler Cowen or Peter Boettke... I forget which... you are imposing a huge "lunch tax" if you talk like this).
I've had a thought on how to put together a modern Hayekian model for a while now that I thought I'd share. I think it would have a lot of credibility with mainstream economists, I just haven't personally been able to prioritize nailing it down. So feel free to give it a shot, just mention me in the acknowledgements as part of the inspiration. Let me know if you decide to work on it, though, so that if I've actually started to do something with it we don't duplicate efforts and insights.
1. Start with a Romer model of increasing product variety. The basic structure of this model is that there is a final goods sector and an intermediate goods sector with an increasing variety of products in the intermediate goods sector. Greater intermediate good product variety increases productivity in the final goods sector, which perfectly captures the Hayekian point about roundabout production... if...
2. ...if those intermediate goods have time component (which currently they do not). But adding this element should be relatively trivial - just index them for time. Now instead of a variety of products you have a time structure of production.
3. Monetary policy comes in in the profit maximization by the intermediate good producer. These are time-indexed goods now so costs need to include the interest rate (think of the intermediate good as a good-in-process that you don't get paid for until the final good is sold). An intermediate good with a higher time index is going to have higher interest costs associated with it. All this is pretty easy so far in the standard set up of the model... I imagine in solving it things will get trickier because of the added interest rates and that's where the work will come in.
4. This alone packs in an awful lot of Hayek. Of course once you've added a time dimension you can bring expectations in too if you want.
If you introduce a monetary shock into this I can't imagine it's going to have different results from the standard Hayekian model. The only difference is that this time it will be microfounded and a modification of a widely used model.
Of course, then you have to make the case that monetary policy is "too loose" right now. That's the hard part of the argument - they think money is way too loose right now while all of us think it's too tight. This is the point that I'm going to make strongly in a Critical Review article coming out later this year - that the Austrian argument is actually quite reasonable in a lot of ways, it's only that the idea that money is too loose right now isn't credible.