John Williams cannot think “outside the box”

He can only think in terms of interest rates. Since that´s pegged at “near zero levels” he feels lost:

Policy rules also wouldn’t have done much for the Fed in recent years with interest rates pegged at near zero levels, Mr. Williams said in the text of a speech prepared for delivery before an audience at Chapman University in Orange, Calif. These rules would have argued for something not easily done, and that would have been for the Fed to have pushed short-term rates deeply into negative territory, he said.

Mr. Williams said the problem policy rules have with zero interest rates is probably not over. The use of unconventional policy stimulus like bond buying and other tools “are very likely to occur again in the future,” and rule-based policy-making will have nothing to contribute in such a scenario, he said.

Scott Sumner has just written a post that tries to understand the “stance” of monetary policy, and ends thus:

People are constantly telling me that my “tight money” theory of the 2008 recession is loony.  But I am never provided with any good reasons for this criticism.  I have no doubt that there are hundreds of macroeconomists who are much smarter than I am, but I do occasionally wonder if my profession is somewhat lacking in imagination.

Lack of imagination is exactly what John Williams (and his colleagues) exudes!


One thought on “John Williams cannot think “outside the box”

  1. And how are you any different from Williams? He uses interest rates, you use some other monetary metric. But the reality is money is largely short term and long neutral and super-neutral. Monetarism is irrelevant. The rantings and ravings of Friedman were just the response of an ideologue who was fooled by randomness.

    But don’t believe me, look at the evidence. Go to this chart here: and observe the responses of GDP for Argentina and Italy, which left the gold standard either earlier or later than the USA, but it did not affect their GDP at all. Now compare to the US and UK, where leaving the gold standard appears to be a factor in recovery. Do you see the logic? You are being fooled by randomness if you think going off the gold standard (i.e. monetarism) was in any way a factor in recovery (or non-recovery) during the Great Depression.

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