Check out this interview with Chicago Fed president Charles Evans(sent to me by JimP):
Where is the common ground on the committee right now?
Evans:The statement is fairly clear on that. We see the economy is recovering. We see inflationary pressures lower and we see the unemployment rate high and it is going to be slower to come down. With the funds rate already at zero, there is a pretty valid question as to how accommodative is monetary policy. Some people would point to the size of our balance sheet and say there is an enormous amount of accommodation. Just look at the amount of excess reserves in the system. Milton Friedman looked at the U.S. economy in the 1930s and he saw low interest rates as inadequate accommodation, that there should have been more money creation at that time to support the economy. That wasn’t based upon the narrowest measure of money, like the monetary base or our balance sheet. It was based on broader measures like M1 and M2 and how weak those measures were. I’ve come to the conclusion that conditions continue to be restrictive even though we have a lot of so called accommodation in place. An improvement would be a dramatic increase in bank lending. That would be associated with broader monetary aggregate increases. Then we would begin to see more growth and more inflationary pressures and then that would be a time to be responding.
It’s so gratifying to read this. As you may know, a small band of us “quasi-monetarists” have been making some of these points for several years. Most people unthinkingly assumed Fed policy was ultra-loose in 2008-09, merely because interest rates were low and the base had grown enormously. We pointed out that the same thing had occurred during the early 1930s, and Friedman and Schwartz showed that policy was actually tight in the only sense that really matters—relative to what was needed for on-target inflation and/or NGDP.
Now we have a top Fed official saying things are actually “restrictive,” and using some of the same examples from the 1930s that we often cite. In my view quasi-monetarism is the best way to diagnose the stance on monetary policy, as we understand that low interest rates often merely reflect a weak economy and severe disinflation.
I suppose I should try to define ‘quasi-monetarism.’
1. Like the monetarists, we tend to analyze AD shocks through the perspective of shifts in the supply and demand for money, rather than the components of expenditure (C+I+G+NX). And we view nominal rates as an unreliable indicator of the stance of monetary policy. We are also skeptical of the view that monetary policy becomes ineffective at near-zero rates.
2. Unlike monetarists, we don’t tend to assume the demand for money is stable, and are skeptical of money supply targeting rules.
Unfortunately there are almost as many nuances to quasi-monetarism as there are quasi-monetarists. I’ll list a few names in the blogging community, with apologies to those who don’t wanted to be included, and those I leave out accidentally. I think of monetary bloggers like Nick Rowe, David Beckworth, Bill Woolsey, Josh Hendrickson, myself, and I’m sure there are others. Some of my frequent commenters have their own blogs, but if I try to list everyone the omissions will just become more noticeable. If you have a blog and consider yourself quasi-monetarist leave your name in the comment section and I’ll add it here:
Update: Marcus Nunes, (who has a Portuguese language blog.) Also commenter “123” who has a blog entitled “TheMoneyDemand”.
I think in the long run quasi-monetarism will merge with monetarism, and become one big school of thought with different perspectives. If Steven Williamson hadn’t already taken “new monetarism” that might be the right term. But his perspective and methods are quite different.
HT: Liberal Roman