Some people think easy money is low nominal interest rates. (DeLong)
Some people think easy money is low real interest rates. (DeLong)
Some people think easy money is an inflationary monetary policy; rising commodity prices. (Laffer)
Some people think easy money is a rising non-interest bearing monetary base. (DeLong)
Some people think easy money is a rising interest-bearing monetary base. (DeLong)
Some people think easy money is a rising M2. (Milton Friedman)
Some people think easy money is a depreciation of the currency in the forex market. (Mundell)
Some people think easy money is a rising NGDP growth rate. (Sumner)
The problem is that we need much more monetary expansion (or fiscal expansion, or something) than we have, given the damage done by the financial crisis. We need to push the real interest rate substantially below zero to get the economy back to full employment. We need enough monetary expansion to drive expectations of inflation up so that the relevant interest rate once again matches the supply of to the demand for the flow-of-funds through financial markets at full employment.
The IS-LM framework has the virtue of not forcing you to say things like the things Rognlie and Sumner do: that the Lesser Depression struck in late 2008 because monetary policy turned contractionary, and because the Federal Reserve tightened. That simply leads–in my view at least–to a lot of confusion.
DeLong “exogenizes” the “Lesser Depression”, with it being a consequence of the financial crisis. Contrary to what he surmises, it is thinking in those terms that leads to a lot of confusion – arguments about liquidity traps, necessary size of fiscal stimulus, needed financial regulation and so on. The MM view, based on the manifestation of monetary disequilibrium, is much more straightforward. It was tight money (with money supply not accommodating the steep rise in money demand (this in part a consequence of the housing price/financial crisis pre-Lehman) that threw aggregate spending “down the drain” so it´s not enough for monetary policy to satisfy the new higher demand for money, it has to be expansionary enough to more than satisfy it, thus increasing spending to some level closer to where it should be if the initial error had not been made.
Lars Christensen “moderates” the debate. But he´s “biased”!
In a world of monetary disequilibrium, one cannot observe directly whether monetary conditions are tight or loose. However, one can observe the consequences of tight or loose monetary policy. If money is tight then nominal GDP tends to fall – or growth is slower. Similarly, excess demand for money will also be visible in other markets such as the stock market, the foreign exchange market, commodity markets and the bond markets. Hence, for Market Monetarists, the dictum is money and markets matter.