The message comes out Loud & Clear

The chart shows that monetary policy is crucial for macroeconomic stability. During “Keynesianism Rules” (a.k.a. “The Great Inflation”) a rising spending (NGDP) trend initially bolsters real growth (RGDP above trend) a fact that got the 1960s to be called “Golden Age”(!). Soon, most of the rising spending managed only to make inflation roar.

The “Volcker Transition” was a short period during which spending growth was reduced and stabilized along a stable growth path, giving rise to the “Great Moderation”.

The “GM” lasted through Greenspan´s ‘reign’ but ‘knowledgeable’ Bernanke may have thought that it was too ‘simplistic’. Better to be explicit about targeting inflation!

What he did get was a beautiful correlation between his nominal spending contraction and the fall in the real economy.

So, “workers unite”. It is in your best interest to get the Fed to target nominal spending along a ‘reasonable’ trend level. Happily it´s also in the “capitalist´s” best interest that the Fed does so!

7 thoughts on “The message comes out Loud & Clear

  1. Pingback: Japanin keskuspankki ja rahan määrän kehitys – pelkkiä lukuja, olkaa hyvä « Tyhmyri's Blog

  2. Pingback: “Workers unite”! It is in your best interest to get the Fed to target nominal spending along a ‘reasonable’ trend level. Happily it´s also in the “capitalist´s” best interest that the Fed does so! « Economics Info

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.