What does Bernanke now say about the market monetarist claim that monetary policy was not expansionary enough during the 2008-09 crisis? This:
(Reuters) – Former Federal Reserve Chairman Ben Bernanke said the U.S. central bank could have done more to fight the country’s financial crisis and that he struggled to find the right way to communicate with markets.
“We could have done some things on the margin to mitigate somewhat the crisis,” Bernanke, 60, said on Tuesday in his first public speaking engagement since he stepped down in January after eight years heading the Fed.
“Although we have been very aggressive, I think on the monetary policy front we could have been even more aggressive.”
Bernanke said he could now speak more freely about the crisis than he could while at the Fed – “I can say whatever I want” – and in remarks to over 1,000 bankers and financial professionals in the capital of the United Arab Emirates, he made clear that he had regrets.
Janet Yellen has only been in charge for a few weeks, and yet I think we are already discovering that Ben Bernanke was not the problem.
It’s the zeitgeist, stupid.
PS. Marcus Nunes sent me a post by Philip Pilkington:
A revolution in how we understand economic policy is now visible – but the question remains as to whether the Bank will seize the moment. Monetarism, you see, has two components. The first is that the central bank should try to control the money supply. In light of the Bank’s report that part of the monetarist doctrine is now a dinosaur fit only to be displayed in the museum of failed economic ideas.
The second component, however, is alive and well. That is the idea that the central bank should use unemployment to control inflation. Although the central banks of the world rarely say it in public, since the monetarist era they have used interest rate hikes to generate recessions and increase unemployment any time they fear an uptick in inflation.
I’m not sure what the “second component” refers to, perhaps new Keynesianism (which is loosely related to monetarism.) This quote provides a good opportunity to distinguish market monetarism from either the original or new Keynesian varieties. We don’t favor controlling the money supply (he means aggregates), nor do we favor using unemployment to control inflation. Indeed we don’t want the central bank to control inflation at all, but rather target NGDP growth.
PS. His comment about the money supply after Thatcher took office is slightly misleading.
Inflation began to subside, not because the money supply stopped growing – it didn’t – but rather because wage growth was contained through high rates of unemployment and the demolition of trade unions.
Yes, it didn’t stop growing, but consider this data: In 1969 the UK base was 3618 million pounds. By 1979 it had soared to 10446 million pounds, up 189%. Then the BoE stopped printing money at such a furious pace and growth slowed, so that the base reached 17621 million pounds in 1989, up 69%. That’s certainly a significant slowdown, and largely explains why prices rose only 85% during the 1980s, after rising 222% during the 1970s.