Arnold Kling thinks he disagrees with me . . .

. . . but he’s wrong.  In a recent post I made this argument:

I don’t like using any kind of interest rate as an indicator of Fed policy.  But if you insist (as most economists seem to) why not at least use ex ante real interest rates?  Then we can very easily explain the crisis this way:

1.  Between July and November 2008 the Fed adopted an ultra-tight monetary policy.

2.  Real interest rates on indexed 5 year T-bonds rose from 0.5% to 4.2%

3.  The tight money caused NGDP growth to plunge from its usual 5% to negative 3%.

4.  The AS/AD model predicts you’d get about 1% inflation and negative 4% real growth.

5.  That’s what we got, therefore modern macro nicely explains the recent recession
Den ganzen Beitrag lesen…