A beautiful addition to the ranks of MM´s

Courtesy of David Levey, this is Diane Swonk on the FOMC minutes:

The group fell short, however, of endorsing a full-scale shift in its targets for both inflation and unemployment, as Chicago Fed President Charlie Evans (who dissented in favor of more stimulus) has proposed. A more likely scenario is that we see the Fed start to shape expectations via a more loose and conditional form of inflation and unemployment targeting. We saw a prelude to this when Chairman Bernanke laid out the Fed’s forecast, which shifted the outlook for unemployment to fall in any meaningful way out to 2014, from 2013.

The Fed also discussed nominal GDP targeting, which I prefer over Evans’s model. It just seems much more intuitive for markets to digest that the Fed is working to recoup losses endured during the recession, rather than raising the actual target on inflation. The Fed is struggling with a liquidity trap; there is a core consensus forming that the Fed must reassure the public and financial markets that it is committed to reflating the economy. The goal is to get consumers and investors to move out of the perceived safety of the Treasury market and make riskier, more productive investments in our future.

It´s good that Charles Evans “proposal” didn´t get traction. Last year he was all about PLT. Now he “votes” for a higher inflation target and lower unemployment, as if there were an “exploitable” Phillips Curve just waiting to be “manipulated”.

If the Fed is “struggling with a liquidity trap” it´s a “self inflicted struggle”. Bernanke knows that´s not an issue and even less a constraint (except in Krugman´s mind).Yes, the Fed “must quickly find a way to reassure the public and financial markets that it is committed”. Once again, for that to be effective it has to clearly state a TARGET. With that the “communications problem” essentially disappears.

Note: Now the ranks of NGDPT “freaks” has been adorned by a beautiful smile! And in addition to the beautiful smile, her credentials are impressive:

3 thoughts on “A beautiful addition to the ranks of MM´s

  1. Yahoo, Diane Swonk. Proof that not only are Market Monetarists smarter than other economists, we are even better-looking!

  2. Pingback: TheMoneyIllusion » Diane Swonk endorses NGDP targeting

  3. Pingback: Diane Swonk endorses NGDP targeting-Economic News | Coffee At Joe's

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