1. Many commenters were skeptical of my claim (in the previous post) that Robert Barro seemed dismissive of demand-side theories of the cycle. Noah Smith linked to this 1989 paper by Barro, which is consistently skeptical of demand playing an important role in business cycles. The impression created by the article is exactly the same impression I got from reading Barro’s 2011 WSJ piece. He didn’t completely rule out demand having some effect, been seemed very skeptical that it could have a significant effect.
2. Several of my more reliable commenters thought this Econlog post gave useful insights into the way I look at NGDP targeting. I can never tell which posts are interesting (I’m too close) but you might want to take a look.
3. David Beckworth has a nice post on forward guidance, with a great title:
Note that this is especially applicable to time dependent guidance. State dependent guidance is better, albeit still has a problem with an interest rate rudder that locks up just when you need it most.
BTW, I see a lot of confusion in the press on forward guidance. There are claims that the Fed has reneged on previous guidance. That’s not quite right. It you promises to visit California and then later promise to visit San Francisco, you have not reneged on your earlier promise. The recent Fed decision to hold interest rates low at least until a considerable period after unemployment falls to 6.5%, is more specific that the promise to hold rates low at least until unemployment falls below 6.5%. There is a problem with the current techniques for forward guidance, but it’s not about reneging on promises. Rather the real problem is using unemployment and inflation as thresholds, when they should use NGDP. And not doing level targeting. In that case they would not have to constantly adjust the threshold as new information about the natural rate of unemployment came in.