In a recent post I discussed 4 possible interpretations of Tyler Cowen’s post on risk-based recessions:

Perhaps the claim is that we might have a recession this year due to risk, despite 3% plus NGDP growth.  If so, I very strongly disagree.  (This could be viewed as a version of real business cycle theory.)

Perhaps the claim is that if there is a recession, then NGDP growth will slow, but that this will not be the cause.  In other words, even in a counterfactual world where the Fed kept NGDP growing at 3% plus, there would still be a recession for non-monetary reasons.  If so, I very strongly disagree.  (Again, an RBC-type claim.)

Perhaps the claim is that falling NGDP growth is a necessary condition for a recession this year, but it will be caused by growing risk and there is nothing that monetary policymakers can do about it.  If so, I strongly disagree.  (A traditional Keynesian claim)

Perhaps the claim is that falling NGDP growth is a necessary condition for a recession this year, but it will be caused by growing risk that monetary policymakers are too cautious to do anything about.  If so, I mildly disagree.  (A New Keynesian claim.)

Tyler has a new post that discusses some of these issues.  He does not refer to this list, but as far as I can tell he has a fairly eclectic view of business cycles, and thus probably doesn’t want to get pinned down to any single hypothesis.  I’ll go further and speculate that he believes both the RBC and the Keynesian explanations may each apply in some cases.  That is, sometimes recessions are caused by real shocks, and could not be prevented even if the Fed were able to stabilize NGDP growth.  And sometimes there are shocks that it is more useful to think of as “non-monetary” even though they work at least partly through the channel of causing NGDP changes that destabilize the economy.  Perhaps because of some problem such as policy lags or the zero bound, the central bank may not be able to prevent those NGDP shocks, and if they are ultimately caused by some other factor, such as financial distress, then it makes more sense to see the recession as being caused by the financial distress, not the “tight money” label that MMs pin on falling NGDP.

I’m not certain I’ve interpreted his views exactly right, but I’ve tried to state them in a way that I think is quite defensible.

The post also has an extensive critique of areas where market monetarism may overreach, i.e. make claims that are unsupported by evidence, if not borderline tautological.  As I read though this criticism I kept coming back to an observation that seems central to me, but perhaps not to Tyler.  I see his strongest criticism as boiling down to something like “Market monetarism is flawed because we lack a real time indicator of NGDP expectations.”  (My words not his.)  That is we lack a NGDP futures market.  And that is indeed a big flaw.

Right now lots of smart market analysts, like Jan Hatzius, suggest that financial conditions have recently tightened enough to slow growth by 1% to 1.5%.  But it would be better if we had a NGDP futures market.  Indeed even last year at this time we had the Hypermind prediction market, which although flawed, was good enough to give ballpark NGDP estimates.  It showed that no recession was expected in 2015. But now we lack even that.

This is important because MM theory says NGDP expectations are the proper measure of the stance of monetary policy. Lacking that market, we sometimes fall back on actual NGDP.  And Tyler points out that if the central bank targets inflation, then NGDP and RGDP shocks would be perfectly correlated, even if there were no causal link.

So far I’ve been trying to describe his argument in as positive a way as possible.  Now I will start disagreeing:

Here is a recent Scott Sumner post, mostly about me.  It’s basically taking the other side of what I have been arguing, and I would suggest simply disaggregating the ngdp terminology into a more causal language of nominal and real shocks.  Surely there are other independent, ex ante signs for judging the tightness of monetary policy, rather than waiting for ngdp figures to come in, which again is citing a transform of the real gdp growth rate as a way of explaining real gdp.

I find these issues come up many, many times in market monetarist writings.  I think they have basically the right policy prescription, and could provide the world with billions or maybe even trillions of dollars of value, if only policymakers would listen.  But I also think they are foisting a language of causality on the business cycle problem which the rest of economic discourse does not easily absorb, and which smushes together real and nominal shocks into a lower-information accounting variable, namely ngdp, and then elevating that variable into a not entirely deserved causal role.  We ought to talk in terms of ex ante, independent measures of monetary policy looseness, not ex post measures which closely resemble indirect transforms of real gdp itself.

My focus when estimating the stance of monetary policy has generally been NGDP forecasts, not actual NGDP. And NGDP forecasts are available in real time, and hence not subject to the “waiting for ngdp figures to come in” critique above.  This point can be made much more effectively by focusing on the past two months.  Tyler says money is not that tight:

I say [monetary policy is] “not that tight,” while leaving room open for the possibility that it should be looser.

What metrics might we look at?  Federal funds futures no longer expect imminent further rate hikes from the Fed.  Expected rates of price inflation have been very close to two percent.  No matter what you think about the structural component of labor supply, cyclical unemployment has recovered a great deal over the last few years.  And that is through the period of “taper talk” of almost two years ago.  Consumer spending is doing OK, not spectacular but not cut off at the knees.  And while in very recent times price expectations are headed downwards away from two percent, this seems to stem from negative real shocks, to which the Fed has responded passively (perhaps unwisely).  That’s different than the Fed tightening.  There was a quarter point rate hike from December, which is a small tightening for sure, but I don’t see much more than that.

Here’s where I strongly dissent from the thrust of Tyler’s argument.

1. The fact that markets now expect zero Fed funds rate increases this year, not the two expected (or 4 promised) in December, is not a sign that money is getting looser, it’s more likely a sign it’s getting tighter.  While on any given day a rate increase is tighter than not increasing rates, over a 12-month period policy is highly endogenous.  If a crystal ball told me rates would be at zero for another 20 years, I’d take that as evidence that money is currently way too tight.

2. Tyler’s claim that expected inflation is 2% is linked to an earlier post, which discusses not market forecasts, but the forecasts of economists.  Two months ago the consensus of economists called for about 1.8% to 1.9% PCE inflation over the next few years.  But even then, 5 year TIPS spreads showed about 1.2% to 1.3% CPI inflation, which is about 1.0% PCE inflation.  And as the following graph shows, market inflation forecasts have fallen much further in the past two months, so even if policy was roughly on target in December 2015, it’s too tight now.

3. A quarter point rate increase in December may or may not be a “small tightening”.  The size of the rate increase is not a reliable gauge of the degree of tightening, because monetary policy affects rates in two partially offsetting ways (the liquidity effect vs. the income/Fisher effects).  Important recessions (US 1937, Japan 2001, eurozone 2011) have been caused by very small rate increases.

4. The recovery in the labor market doesn’t tell us much about the risk of recession, other than that we aren’t in one yet.

5.  Any “real shock” that reduces NGDP expectations because the Fed responded passively is also a monetary shock.  It could be both monetary and real.  If frightened Venezuelans started hoarding US currency and the Fed didn’t print any more currency, and NGDP fell, I’d call that a tight money policy even if it was “passive.”  In any case “passive” is a meaningless concept in monetary policy, as change can occur along many dimensions; fed funds target, reserve requirement, the monetary base, IOR, exchange rates, price of gold, TIPS spreads, etc., etc.  At any give moment, policy will be active along some dimensions and passive along others.

My views on current business conditions are pretty similar to those of Tyler, AFAIK.  I think we both see a modest risk of recession this year, but less than 50-50.  So suppose there is a recession this year—can I say, “I told you so”?  I certainly didn’t think the rate increase in December would lead to recession (although some other MMs were more pessimistic.)  But that misses the point.  Sorry to be so long winded, but wake up here, this is the key point.

The Fed needs to always keep the “shadow NGDP futures price” close to target.  If at any time they let it slip, as they did in September 2008, and if MMs point out that it is slipping, and if the Fed does not take aggressive actions that it clearly could take to prevent if from slipping, then yes, it’s the Fed’s fault.

That italicized statement does not involve any Monday morning quarterbacking.  I’m not going to blame them for anything that they cannot prevent in real time.  But recall that currently they are not even at the zero bound.  Let’s explain this with a simpler example.  We do have TIPS spreads, so we don’t need shadow prices for inflation expectations.  MMs claim that even with the liquidity bias in TIPS spreads, the current ultra-low 5-year spread suggests money is too tight for the Fed’s 2% inflation target.  That doesn’t mean we’ll have a recession, but if the Fed wants to hit their 2% inflation target they need to ease policy.  If they don’t, and if they fall short of their inflation target, then MMs will have been right.

Now I think it’s possible that the Fed will luck out here, and perhaps even hit their inflation target.  But on balance I believe markets are right more often than not, and the Fed will once again fall short.

Note that if we had a good NGDP futures market I could have reduced the length of this post by 80%.  It would be easy to address Tyler’s various points by referring to NGDP futures prices.  Either they predict recession or they don’t.  Either they are controllable at the zero bound or they are not.  They would be real time indicators, with no Monday morning quarterbacking involved.  But we don’t have that market, so the best we can do is estimate a shadow price of NGDP futures by looking at TIPS spreads, bond yields, stock indices, commodity prices, and a zillion other factors, and construct the best estimate we can of the current market NGDP forecast.  That’s the key variable for me, not actual NGDP.

Actual NGDP comes in to play when we consider level targeting.  MMs believe not just that level targeting would make recessions shorter, we also think it would make them less likely in the first place.  So the one area where we are justified in criticizing the Fed based on actual NGDP numbers is the level targeting issue; are they trying to get us back to the trend line?  If they don’t level target, then recessions are more likely to occur, and will be deeper.

PS.  I’m not sure what Tyler means by saying NGDP is a transform of RGDP.  Does this mean NGDP * (1/p) = RGDP?  If so, isn’t that true of any variable?

M * (V/P) = RGDP

In general,

X * (RGDP/X) = RGDP, where X is the price of a can of tomato paste.

Nor do I understand the “tautology” remark attributed to Angus.  Obviously it’s not a tautology for Zimbabwe. The only way I can make sense of this complaint is that the Fed actually does target inflation, so it makes sense to assume P is stable, whereas it doesn’t make sense to assume V/P or (RGDP/X) is stable.  And if we assume P is stable then NGDP and RGDP become highly correlated.  Fair enough.  But as Nick Rowe recently point out, what matters is the counterfactual where NGDP is kept stable.  Which brings us back to the list at the top of this post.  I think MM critics need to think long and hard about exactly which of those four critiques is the most important, and what sort of empirical evidence we’d use to evaluate that critique.

PPS.  I also have a new post over at Econlog.

PPPS.  I will be doing a “Reddit” on the 23rd at 1 pm, whatever the heck that is.  “Ask me anything.”

Multipliers are ratios. That’s really all they are. There is the money multiplier (M2/MB), the fiscal multiplier (1/MPS) and the velocity of circulation (NGDP/MB, or NGDP/M2). If you assume these ratios are stable, you can derive some very interesting policy results. Of course the ratios are not completely stable, but may be stable enough to be of some value. Sometimes. My own view is that multipliers aren’t particularly useful, but today I’d like to assume the opposite, and show that the implications are not necessarily what you might assume.  (And please, no comments from MMT zombies “explaining” to me that multipliers don’t exist.)

Milton Friedman faced a quandary when trying to explain how bad government policies led to the Great Depression. If he defined the money supply as “the monetary base” (as I prefer), people would have pointed out that the base increased sharply during the Great Depression. Alternatively, he could have adopted the market monetarist practice of defining the stance of monetary policy in terms of changes in NGDP. Thus falling NGDP during 1929-33 was, ipso facto, tight money. His critics would have objected that this begged the question of how could the Fed have prevented NGDP from falling.

So he split the difference, and settled on M2 as both the definition of money, and the indicator of the stance of monetary policy. He suggested that, “What is money?” was essentially an empirical question, not to be determined on theoretical first principles. His statistical analysis led him to conclude that M2 (which unlike the base did fall during the early 1930s) was the preferred definition of money. And also that growth in M2 should be kept stable at roughly 4%/year.

In my view M2 no longer represents a good definition of money, using Friedman’s pragmatic criterion. Look at M2 growth in recent years:

I don’t know about you, but I see almost no correlation with the business cycle. Indeed M2 growth soared in the first half of 2009, making money look “easy”, which is obviously crazy. So if Friedman were alive today, how would he define money? The base still doesn’t work, as reserves also soared in 2008-09. Nor does M2. I don’t have a good answer, but I suspect that coins might be the best definition. Unlike the base and M1, periods of illiquidity probably don’t lead to massive hoarding of coins.  They are primarily useful for making transactions (although a sizable stock is held in piggy banks.)

Unfortunately, I could not find any data for the stock of coins in circulation. (Which is a disgrace, when you think about the 100,000s of data series the St Louis Fred does carry. As I recall, back in the 1990s coins were almost as important a part of the base as bank reserves.) But I did find data on annual coin output. For simplicity, I chose unit output, but value of output (which counts quarters 5 times more than nickels) would almost certainly lead to broadly similar results. In the list below I will show the change in annual coin output, compared to the year before, and also the change in the unemployment rate at mid-year (June) compared to the year before. The unemployment rate change is in absolute terms:

Year  * Coin Output  * delta Un

2000:   +28.1%           -0.3%
2001:    -30.9%          +0.5%
2002:    -25.7%          +1.3%
2003:    -16.5%          +0.5%
2004:    +9.5%          -0.7%
2005:   +16.1%          -0.6%
2006:    +1.4%           -0.3%
2007:    -6.9%             0.0%
2008:    -29.8%        +1.0%
2009:   -65.0%          +3.9%
2010:   +79.6%          -0.1%
2011:    +28.7%         -0.3%
2012:   +13.9%          -0.9%

Unfortunately my data ends at 2012, but that’s a really interesting pattern. Especially given that I don’t have the data I’d actually prefer.  I’d like the change in the size of the coin stock; instead I have the change in the flow of new coins (but not data on old coins withdrawn.)  It’s more like a second derivative.

In any case, it’s an amazing correlation. The signs are opposite in every case except the one where unemployment doesn’t change at all.  Coin output falls during years when unemployment is rising, even years like 2003 when unemployment is rising during a non-recession year.  And even better, the biggest change by far in coin output (proportionally) is in 2009, which also saw the biggest change by far in unemployment.

If you are not good at math then you’ll have to take my word for 2010 being a smaller change in proportional terms.  Indeed if you look at actual coin output in levels, 2010 was the second smallest in the sample, 2011 the third smallest, and 2012 the 4th smallest.  The decline in 2009 was so great that we never really climbed out of the hole.

Now let me emphasize that there’s an element of luck here.  If we had coin data for 2013 and 2014 I doubt the relationship would hold up.  Coin output seems to be in a steep secular decline.  So it’s partly coincidence that the signs are reversed in virtually every case.  But not entirely coincidence.  Perhaps someone could do a regression (using first differences of logs of coin output—so that the 2009 change will be larger than 2010) and confirm my suspicion that this relationship does show something real.  Falling coin output is associated with recessions.

But does it cause recessions?  If only you knew how tricky the term ’cause’ really is!  Krugman basically called Friedman a liar (soon after Friedman died) for claiming that tight money caused the Great Depression, whereas in Krugman’s view Friedman’s data pointed to the real problem being a non-activist Fed—they didn’t do enough to prevent M2 from falling. But they didn’t cause it to fall with concrete steppes.  The base didn’t fall.

I’ve always believed we should think of “causation” in terms of policy counterfactuals.  Suppose the Fed had acted in such a way that M2 didn’t fall.  And suppose that in that case there would have been no Great Depression.  Then if the Fed was capable of preventing M2 from falling (which is itself a highly debatable claim) then there is a sense in which Friedman was right, the Fed did cause the Great Depression.  Again, that’s if they could have prevented M2 from falling, and if stable M2 would have prevented a depression–both debatable (but plausible) claims.

My claim is that if we use Friedman’s pragmatic criterion for defining money, then coins might possibly be the best definition of money for the 21st century.  If the Fed had acted in such a way that coin output was stable in 2007-09, or at worst declined along its long run downward trend, then there would have been no Great Recession.  So in that sense the fall in coin output “caused” the Great Recession. But I could also find a 1000 other “causes,” such as plunging auto sales.

Can the Fed control the coin stock?  I’d say they could in exactly the same way they can control M2 (or nominal auto sales), via a multiplier.  The baseline assumption is that both the coin stock and M2 move in proportion to the base.  That would be the case if the M2 and coin multipliers were stable.  If the multipliers change, then the Fed simply adjusts the base to offset the effect of any change in the coin multiplier.

No let me quickly emphasize that I view the preceding as an extremely unhelpful way of thinking about monetary policy and the Great Recession.  I still prefer to define money as the base, as the base is directly controlled by the Fed.  And I prefer to define the stance of monetary policy as NGDP growth expectations.  And I prefer to think of tight money as setting the monetary base at a level where NGDP growth expectations fall below target, as in 2008-09.  I’d just as soon leave coins to children with piggy banks and nerdy collectors.  But if you insist on defining money using Friedman’s pragmatic criterion, then coins are my definition of the money stock.

A penny for your thoughts?

PS.  I have a new post on the Phillips Curve at Econlog.

Greek finance minister Varoufakis got a lot of attention a few months back with this tweet:

FDR, 1936: “They are unanimous in their hate for me; and I welcome their hatred.” A quotation close to my heart (& reality) these days

There are indeed a number of striking similarities between FDR and Syriza.  The one I’ve been thinking about most recently occurred in June 1933. FDR’s representatives had been in Europe trying to negotiate a restoration of fixed exchange rates at the World Monetary Conference.  They were getting close to agreement when FDR issued a shocking statement favoring flexible rates that undercut his representatives and blew apart the conference.  Sound familiar?  FDR took pleasure in outraging the VSPs of his day.  Yes, in temperament Varoufakis is something like FDR.

I’m a big fan of FDR’s policy of devaluation, so why am I not a big fan of Varoufakis?  My critics think it’s all mood affiliation.  Maybe so, but recall that I am also a market monetarist.  And the “market” part refers to the fact that I believe markets provide the best indicator of the likely effect of policy shocks.

In 1933 the Wall Street elite were horrified by FDR’s replacing the gold dollar with a “rubber” dollar, having a flexible value.  And yet US stock prices soared on each and every outrageous statement by FDR, such as when he torpedoed the WMC in late June.  The Greek stock market was closed during the recent vote (and remains closed) but both Greek and European stocks responded negatively to information suggesting that Syriza was unwilling to deal during the month of June, and then rose on hopes for an agreement.  Those contrasting market reactions are probably telling us that there are small but important differences between the US in 1933 and Greece today.

To end on a fair and balanced note:

1.  The market would probably also welcome more European flexibility in striking a deal.

2.  The fact that FDR was right when all the VSPs thought he was wrong should make us cautious about judging the Greek situation.  It’s certainly possible that Varoufakis is right and I am wrong.

PS.  Between mid-April  and mid-July 1933, US stocks were even rising sharply in gold terms, despite rapid depreciation of the US dollar against gold.

Bob Murphy directed me to a Brad DeLong post bashing Milton Friedman:

In A Monetary History of the United States, published in 1963, Friedman and Anna Jacobson Schwartz famously argued that the Great Depression was due solely and completely to the failure of the US Federal Reserve to expand the country’s monetary base and thereby keep the economy on a path of stable growth. Had there been no decline in the money stock, their argument goes, there would have been no Great Depression.

I can’t understand how a brilliant economic historian like DeLong could make such a totally erroneous statement.  Milton Friedman and Anna Schwartz clearly documented the fact that the Fed increased the monetary base sharply during the Great Depression. They discussed the Fed’s QE policy of 1932.  So the preceding statement is flat out wrong.

And indeed the entire post is confused.  DeLong argues that the Great Recession was partly caused by the influence of Friedman’s ideas.  Actually, one could argue that the Great Recession happened because we did not pay enough attention to Milton Friedman.  Indeed this Friedman insight from 1998 was totally ignored in late 2008 by all but a tiny band of market monetarists:

Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

.   .   .

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

In early 2009 I wrote a piece sharply criticizing DeLong for claiming that monetary policy was ineffective at the zero bound and that we therefore needed fiscal stimulus. He finally got the message, and a few years later he was bashing the Fed for letting NGDP growth plunge.  Now he’s back to claiming there was nothing the Fed could do at the zero bound.

When I was in grad school in the 1970s, anyone claiming a fiat money central bank would be unable to debase its currency would have been laughed at.  As recently as the early 2000s mainstream economists like Mishkin, Bernanke, Svensson, etc., were still scoffing at that idea.  It’s a sad comment on modern macro that this bizarre theory has suddenly become mainstream without a single shred of evidence in support.  Even worse, most macroeconomists don’t even seem to know what evidence in support of monetary policy ineffectiveness would look like.

PS.  Bob Murphy also has a post on the same topic.  David Glasner criticizes the DeLong post for other reasons.

PPS.  I strongly believe that if the FOMC had been composed of 12 Brad DeLongs, the Great Recession would have been considerably milder.  Which means Brad is wrong.  🙂

Ramesh Ponnuru has a very good article pushing back against Robert Samuelson’s criticism of Fed bashers.  While Mr. Samuelson is certainly right that much of the criticism is a bit nutty, sometimes I think there is a tendency for what Paul Krugman calls “Very Serious People” to be overly protective of institutions such as the Fed.  I am perfectly willing to accept the claim that the Fed is an institution full of very talented people.  I believe that its leadership is well intentioned. I believe Fed policy partly explains why the US has done better than the eurozone in the past 4 years.  I believe that, on average, Fed policy has improved over time.

But . . . no institution should be immune from criticism, as there is always room for improvement.  Today I’d like to talk about the biggest Fed basher of them all: Ben Bernanke.  Here’s Bernanke blaming the Fed for the Great Inflation:

Monetary policymakers bemoaned the high rate of inflation in the 1970s but did not fully appreciate their own role in its creation.

And here’s Bernanke attributing the performance of the Fed during the Great Moderation to improved Fed policy:

With this bit of theory as background, I will focus on two key points. First, without claiming that monetary policy during the 1950s or in the period since 1984 has been ideal by any means, I will try to support my view that the policies of the late 1960s and 1970s were particularly inefficient, for reasons that I think we now understand. Thus, as in the first scenario just discussed (represented in Figure 1 as a movement from point A to point B), improvements in the execution of monetary policy can plausibly account for a significant part of the Great Moderation. Second, more subtly, I will argue that some of the benefits of improved monetary policy may easily be confused with changes in the underlying environment (that is, improvements in policy may be incorrectly identified as shifts in the Taylor curve), increasing the risk that standard statistical methods of analyzing this question could understate the contribution of monetary policy to the Great Moderation.

And here’s Bernanke blaming the Fed for the Great Depression:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

That’s a pretty serious charge, given that the economic collapse of 1929-33 turned the Nazis from a small fringe party to the dominant political force in Germany.  And Bernanke is not just a Fed basher; he lashes out at any other central bank that doesn’t do what he thinks they should be doing:

Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. Perhaps it’s time for some Rooseveltian resolve in Japan.

So the Fed is to blame for the Great Depression, deserves praise for producing low inflation during the 1950s and early 1960s, deserves praise for producing a stable macroeconomy during the Great Moderation (1984-2007), and is to blame for the Great Inflation of 1966-81.  In this set of PowerPoint slides Bernanke blames the Fed for the severe 1981-82 recession.  Are we to assume that beginning in 2008 the Fed suddenly stopped being responsible for macroeconomic outcomes?  After being to blame or deserving credit for virtually every single major macroeconomic twist and turn since it was created in 1913?

Not according to William Dudley, current New York Fed President and close Bernanke ally.  He argues the Fed continued to make mistakes after 2008:

I would give each of these four explanations some weight for why the recovery has been consistently weaker than expected. But I would add a fifth, monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances.  .  .  .

My conclusion is that the easing of financial conditions resulting from non-traditional policy actions has had a material effect on both nominal and real growth and has demonstrably reduced the risk of particularly adverse outcomes.  Nevertheless, I also conclude that, with the benefit of hindsight, monetary policy needed to be still more aggressive. Consequently, it was appropriate to recalibrate our policy stance, which is what happened at the last FOMC meeting.

As I argued in a recent speech, simple policy rules, including the most popular versions of the Taylor Rule, understate the degree of monetary support that may be required to achieve a given set of economic objectives in a post-financial crisis world. That is because such rules typically do not adjust for factors such as a time-varying neutral real interest rate, elevated risk spreads, or impaired transmission channels that can undercut the power of monetary policy.  [emphasis added]

So from the vantage point of October 2012, William Dudley suggests that monetary policy over the previous 4 years was insufficiently expansionary.  He’s “bashing” the Ben Bernanke Fed, and he’s almost a clone of Bernanke in his policy views!

I wonder if Dudley is also admitting that, in retrospect, a certain group of monetary cranks that were bashing the Fed in 2008 and 2009 for inadequate nominal growth might have been right.

I don’t know if “Fed basher” is the right term to apply to Ben Bernanke.  All I can say is that if Bernanke is a Fed basher, then I’m proud to be one too.