In his formal remarks, Mr. Plosser spent much of his time recounting his career studying business-cycle modeling. He said over the last few years, something big has clearly happened to the economy’s long term momentum.
“It certainly looks like we’ve had a permanent shock” in the wake of the housing-market bust and resulting recession, Mr. Plosser told the audience. But when it comes to understanding the causes and results of that event, observers “won’t know the answer for many years.”
Mr. Plosser, how does this picture qualify as representing your “permanent shock”?
Suggestion: Take time to go to the Romers presentation at the meetings. They have two interesting papers on the block:
“The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter”
It is simply incredible to me what otherwise rational human beings will believe.
Okay, if a nation had its factories bombed, its infrastructure seriously damaged, and its prime farmland flooded, one would expect a dent in GDP for quite a while.
We are talking about something that is invisible, is a fiction: debt (or credit).
Imagine explaining to a visitor from Mars why economic output is crimped. “You see, these guys at computer screens bought mortgage-backed securities, and they busted.”
What is an MBS? Can you see it?No. Taste it? Feel it?
“So,” the Martian says, “You are suffering because of a fiction you invented?”