Why average inflation targeting matters

The FT has a new piece by Gavyn Davies discussing the possibility (likelihood?) that the Fed will soon adopt average inflation targeting. To see why it matters, consider the Fed’s current policy stance under two scenarios:

1. Inflation targeting: The Fed should probably cut rates, but it’s debatable.
2. Average inflation targeting: The Fed should cut rates, and it’s not even debatable.

Those two cases might not look so different. But it just so happens that the Fed has opted not to cut rates right now, even though it’s likely that a rate cut is appropriate. So Fed policy would change if we switched to average inflation targeting. Jay Powell hinted at this in his recent press conference:

Over time, an average inflation targeting framework would be different than our current framework in the sense that it wouldn’t be—there would be some aspect of trying to make inflation average 2 percent over time, which means if it runs below 2 percent for a time it has to run above to bring the average. So, that is a different framework. Our current framework is one where we say, we or would be equally concern with deviations of inflation from target on either side. But that isn’t—that doesn’t suggest an intention specifically to have those deviations be symmetric. In other words, that would—consistent with—that would be having all the deviations to be on one side, which is what we’d had actually. So I think it is a change in framework, and over time it would lead to a different approach to policy.

Let’s assume that Jay Powell is frustrated with the persistent undershooting of the Fed’s 2% inflation target and wants to do something about it.  But a substantial portion of the FOMC believes current policy is appropriate because inflation is only modestly below 2% and with a strong economy is likely to rise over time.  The policy hawks also believe that lower rates could trigger excesses in asset markets.  So the Fed is standing pat for the moment.

Switching to average inflation targeting would be a way of forcing the Fed’s hand.  FOMC members could no longer say we are only slightly below the inflation target and likely to hit the target in the near future.  This would push the Fed toward a more expansionary policy stance.

If the Fed does adopt average inflation targeting this summer, it will be a good indication that the Fed thinks money is currently too tight.  This action would likely be linked to an easing of monetary policy.  Trump continues to be very lucky.

PS.  I am seeing a surge in articles discussing the unusually long business cycle expansion.  In the future, we will see many more such articles and  people will cite factors such as a lack of financial crises.  Actually, there were 9 recessions from 1945 through 1982, and virtually no financial crisis.

Once I’m gone I hope you’ll remember that I was the one who said business cycles would become much less frequent in the future, and I told you why.  The others will attribute the lack of recessions to good luck, but then they never saw it coming.

PPS.  Judy Shelton has been nominated for a position at the Board.  She shares the same weaknesses as the earlier Moore and Cain nomination.  She switched from being very hawkish during the period of high unemployment in the early 2010s to being very dovish today when unemployment is low.  Beside those three, the only other person I know who made that switch was Donald Trump.  Hmmm. . . .

In defense of Shelton, in 1994 she correctly pointed out that FDIC was likely to create reckless lending by banks:

Shelton’s views on the Federal Deposit Insurance Corporation have also drawn criticism. In her 1994 book, “Money Meltdown,” Shelton advocated for ending federal deposit insurance, which most economists credit with restoring faith in the banking system following the Great Depression. Shelton called it a government subsidy that distorted financial markets. “Depositors no longer have to make judgments about the competence of bank management or the characteristics of the loan portfolio,” she wrote.

In my view, FDIC was the number one cause of the 2008 financial crisis (with the exception of monetary policy).  Unfortunately, I expect her to backtrack on this issue in the upcoming confirmation hearings.  Her answer to this question will determine whether I support her nomination.


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32 Responses to “Why average inflation targeting matters”

  1. Gravatar of Gene Frenkle Gene Frenkle
    11. February 2020 at 13:21

    I too predicted long business cycles thanks to fracking solving our issue with the first law of thermodynamics that limited our energy intensive consumer spending economy. Fracking also explains 2016 because it was Texas’ .3 GDP growth that made the overall GDP number look bad…but everyone knew cheaper oil would benefit America over the long term so the economy remained strong. Throw in the fact Moody’s Analytics election prediction model had low oil prices as a positive when in fact it was a negative and you can see how quickly fracking changed the American economy for the better. Furthermore you state the recessions in 1974 and 1981-1982 were the worst…most people understand those recessions had an oil crisis component. Even though most people don’t buy my theory of 2001-2008 suboptimal American economy due to a quiet energy crisis, most people know the price of oil spiked in 2008…so at the very least that recession had an oil crisis component.

  2. Gravatar of ChacoKevy ChacoKevy
    11. February 2020 at 13:43

    “In my view, FDIC was the number one cause of the 2008 financial crisis (with the exception of monetary policy).”
    Have you written about this here on the blog? I know you’ve said this before, but I don’t remember why.

  3. Gravatar of ssumner ssumner
    11. February 2020 at 13:45

    ChacoKevy, FDIC creates moral hazard, encouraging banks to undertake excessive risk taking.

  4. Gravatar of stoneybatter stoneybatter
    11. February 2020 at 14:08

    Scott, to what extent are you worried that Fed officials are already talking about the need for fiscal support in the next recession (whenever that may be)? For example:

    “It would be important for fiscal policy to help support the economy if it weakens” – Powell, Feb 11

    “With monetary policy facing its own limits, fiscal policy will need to play a larger role in smoothing through economic shocks” – Daly, Feb 10

    I know a lot of economists (e.g. these speakers, Summers, Blanchard, maybe Bernanke) think there is a strong case for fiscal policy to play a role when in a liquidity trap/at the zero lower bound, but I believe you take the opposite view. Should we be worried that the current leaders of the Fed seem to think that their power is limited?

  5. Gravatar of ChacoKevy ChacoKevy
    11. February 2020 at 14:56

    Thanks Scott,
    I don’t know enough (much), but playing devil’s advocate for a moment – moral hazard doesn’t seem all that convincing. FDIC chartered in ’33, so it seems hard to say moral hazard reared its head after 70 years.
    Anyway, go Bucks!

  6. Gravatar of Ray Lopez Ray Lopez
    11. February 2020 at 16:46

    On topic: further evidence money is neutral (monetarism doesn’t work) and only fiscal policy matters.

    https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.34.1.55 – The costs of India’s Demonetization – “Because banks were flush with deposits during the months immediately after the demonetization shock, one might have expected credit conditions to have become significantly easier. However, none of the interest rates showed any sharp movement off their long-run trends around the demonetization date, nor did bank credit pick up in any significant way. In fact, bank credit fell marginally on impact. This is somewhat surprising given that total bank deposits rose by almost 6 trillion rupees on impact of the shock. … The unemployment rate is another variable that one might look at for clues regarding the effects of demonetization. … The figure reveals two interesting features. First, the unemployment rate in India was declining throughout 2016. There is hardly any noticeable effect of demonetization on this declining trend. Second, the unemployment rate begins to rise steeply in India after the introduction of the Goods and Services Tax reform [i.e., HIGHER TAXES PAID]”

    But hey, don’t let facts get in the way of a good story.

  7. Gravatar of LC LC
    11. February 2020 at 16:54

    The link to “I told you why” is not working. It led to a WordPress login page. Please update.

  8. Gravatar of ssumner ssumner
    11. February 2020 at 16:58

    stoneybatter, Worried to some extent. But Powell also said that fiscal policy needs to be sustainable during good times to be effective during recessions. It’s clearly not sustainable now, so I believe Powell does not assume it will be effective. He won’t rely on it.

    Chacokevy. Moral hazard also reared its head in the 1980s. Prior to 1980, banks were being bailed out by ever increasing inflation.

    Ray, Too late, I discussed the Indian case over at Econlog. It confirms everything I’ve been saying. And money wasn’t neutral in that case, so you picked the wrong example! Do you even know what money neutrality is?

  9. Gravatar of Benjamin Cole the Tin-Foil Hat Economist Benjamin Cole the Tin-Foil Hat Economist
    11. February 2020 at 17:02

    If there were no FDIC, perhaps private deposit insurance would emerge. So, as a depositor, you would either ask the bank do they offer private deposit insurance, or you would buy it from a private insurer.

    One would hope that the private insurer would not insure deposits unless the bank was following sound policies, which would require some sort of investigation.

    Actually determining if a bank is following safe policies and procedures is beyond the scope of any individual. You would have to review all the loans the bank made—in short, become a senior loan officer 24/7.

    Of course, sophisticated institutional investors purchased private financial insurance before 2008. They purchased insurance on bonds through AIG. That is, if the issuer of a bond failed, AIG would make the buyer of the bond whole.

    AIG failed in the first zypher of the Great Recession and the government had to step in and bail the company out. This seems to be a recurring theme whenever there is private financial insurance.

    Another market response to no FDIC might be the emergence of non-bank banks. That is, people store your money safely and allow you to access it through ATMs, and the like. But they charge you a fee, say perhaps several percent of a year. Orthodox macroeconomists might think this would result in disintermediation. John Cochrane has also suggested legalizing banks that invest only in Treasuries.

    It is interesting to ponder the creation of non-bank banks and the elimination of reserve banks which are able to endogenously create money, but which are inherently fragile. That is, everywhere in the world commercial banks create money and lend long (on illiquid assets no less) but borrow short. You might call that asking for trouble. (Would any private-sector insurer ever insure such a system?)

    Instead of creating money endogenously through the inherently fragile commercial banking system, money could be created through money-financed fiscal programs AKA helicopter drops.

    In this scheme, commercial banks would only lend out 100% of deposits (not say 700% of deposits) and would provide private deposit insurance to depositors.

    This second option is probably not politically possible now.

    PS–evidently there is federal deposit insurance in Canada, and they’ve never had a bank failure. So, what does that mean? I don’t know.

  10. Gravatar of Ray Lopez Ray Lopez
    11. February 2020 at 17:21

    Re: my post upstream. Since Sumner doesn’t provide good links, here is his latest post (2/11/20) on the Lahiri paper that I cite below: https://www.econlib.org/the-indian-currency-experiment/

    Since Econlib has banned me (I’m too controversial for them) here is my reply to Sumner’s piece:

    1) as expected, no pun, RatEx (rational expectations) is argued as to why the Indian monetary experiment failed, arguing the shock was not viewed by the people as permanent but temporary. This is metaphysics, since something that doesn’t work will always be deemed “temporary”. You can’t falsify this claim hence it’s not science.

    2) Sumner ludicrously makes the claim that a real shock is temporary but printing money ala Sumners NGDPLT is permanent. Analogy: a meteor hits earth and destroys half the planet. This is a real shock but temporary, so the economy will ‘come back’. But if we print money like Sumner wants us to, in a credible manner, the shock is permanent and if people believe it’s permanent (see #1 above), prosperity will (temporarily) result. Never mind that any monetary solution, say textbooks, is always temporary (standard H. Hicks chart analysis) and presumably RatEx will ensure, unless people really are blind to money illusion, that even ‘permanent’ money printing will be quickly adjusted for (via inflationary expectations) so no real change in output will result.

    PS–of course I know what money neutrality is. Ironically, history shows money is neutral but long term people want a ‘unit of account’ aka ‘constant prices’ so money supply expands as GDP expands (archeology proves this). So in a strange way money is NOT neutral long term, if you assume expanding money supply correlates with higher GDP. The trouble is this correlation is not two way: higher GDP leads to higher money supply (long term, not short term) but a higher money supply does not lead to higher GDP (money is neutral). A subtle point that 99% of you won’t get, and, sadly, I’m afraid that includes our excellent host.

  11. Gravatar of Gene Frenkle Gene Frenkle
    11. February 2020 at 18:11

    Ray Lopez, can you do your analysis with real shocks instead of a hypothetical shock? I would suggest using the oil shocks of 1973, 1979, and 2008 that preceded recessions. Keep in mind the first law of thermodynamics applies to academic fields outside physics.

  12. Gravatar of Benjamin Cole Benjamin Cole
    11. February 2020 at 19:15

    I want to be Ray Lopez’s valet. He claims to have a lot of money, but won’t let me be his valet for one year.

    I even promised to accept and amplify his economic theorizing.

  13. Gravatar of Will Will
    11. February 2020 at 19:39

    The Fed’s own stated framework is to have a medium-term inflation target of two percent, and that the target is symmetric. How can this be interpreted as anything other than an average inflation target? That is, being content with “we are only slightly below the inflation target and likely to hit the target in the near future” does not lead to medium-run symmetry and therefore already violates the Fed’s own publicly-stated goal.

  14. Gravatar of Nick Nick
    12. February 2020 at 04:53

    Hi Scott, you favour NGDP growth targeting and I believe think that AIT is a step by the fed on the way there. Under NGDP targeting we would currently be running slightly below normal inflation in order to run above normal inflation during a recession/slowdown.
    I think you regard AIT as dovish now because you are assuming that the fed will do inflation catch up when things are fine, and as such have a higher (on average) but more fluctuating NGDP growth. This appears to be what the FED has communicated but as I understand it is not what you think is ideal (but is better than not catching up at all)
    Is this correct or is there a reason that I haven’t understood for why you think it means they will cut rates and that would be exactly what you think is appropriate?
    Thanks

  15. Gravatar of rayward rayward
    12. February 2020 at 06:57

    I’m not bothered by Ray’s arrogance; indeed, I find it amusing and hope Sumner doesn’t lock him out for going too far. I’m sometimes accused of being condescending, but it’s only an affect, something we practice down here in the South. It’s what distinguishes folks who are from “good families” (not necessarily wealthy families).

    As for the business cycle and shocks and monetary policy, I rely on observations, and what I observe is that the economy ain’t what it used to be. By that I mean business cycles are a product of an economy that is heavy on investment in productive capital, with over-exuberant investors investing in plant and machinery to produce too many goods. That was the American economy, but no more. American investors don’t invest in productive capital, not here anyway. Not even Trump’s enormous tax cut for corporations generated much in the way of investment in productive capital. The economy we have today is consumer driven, with rising asset prices providing consumers with the confidence to consume. As long as asset prices rise, all is well in the kingdom; but if asset prices tumble (a shock triggered by, for example, the coronavirus), consumption tumbles with it. It wasn’t just the unemployed who didn’t consume during the Great Recession, consumption by the well-off tumbled too.

    Expansionary monetary policy might work in the old economy, providing an inducement for banks to lend and businesses to borrow and invest in productive capital. It didn’t work all that well in the Great Recession because banks didn’t lend and businesses didn’t really want to borrow to invest in productive capital. Pushing on a string is the old pejorative. By the way, the budget Trump offered yesterday would raise federal spending to $14,652 per person, up $1,441 per person since Trump became president. Now, that’s not pushing on a string. Unfortunately, it’s not investing in productive capital either. Am I being condescending? I hope so, since I’ve spent much of my time practicing.

  16. Gravatar of Travis Allison Travis Allison
    12. February 2020 at 09:17

    Scott, your link in “I told you why” is wrong. It goes to some “Log in page”. Could you correct it?

    Thanks!

  17. Gravatar of Thaomas Thaomas
    12. February 2020 at 10:09

    I cannot understand how aiming at a symmetric inflation rate can be different from price level targeting unless the Fed’s internal model of what combination of ST interest rates, IOR, and QE purchases/sales, or whatever other instrument they might use to achieve the target is systematically wrong (and in which case why haven’t they improved the model?). I think the more straightforward explanation is that they have a 2% inflation ceiling target. If Powell’s obfuscation helps the Fed abandon the ceiling and actually target the PL (as the prices HALF of their dual mandate) so much the better.

  18. Gravatar of Thaomas Thaomas
    12. February 2020 at 10:21

    I don’t agree, but isn’t the moral hazard argument that FDIC leads insured depositors to pay insufficient attention to banks’ risky behavior.

    Perhaps you see FDIC insurance as a quasi-promise to non-insured liability holders and stockholders that their losses will be cushioned by bailout. I agree that that quasi-promise is now stronger than ever after the way shareholders were not zeroed out in 2008-2009, but I do not think FDIC insurance per se has much to do with it.

  19. Gravatar of Thaomas Thaomas
    12. February 2020 at 10:33

    @rayward

    We don’t know if “expansive” monetary policy would have worked to restore real growth or not. The Fed didn’t keep inflation at 2% or get the PL back on a 2% pa trajectory when it fell off.

    BTW, it’s not only private investors who are supposed invest more when they can borrow more inexpensively, but the public sector, too.

  20. Gravatar of ssumner ssumner
    12. February 2020 at 11:30

    Ray, You said:

    “PS–of course I know what money neutrality is.”

    Then why claim the Indian case shows money neutrality, when prices didn’t move with the money supply?

    Will, Average inflation targeting is different when there is a miss of the 2% target. It involves catch-up.

    Nick, I actually favor NGDP level targeting, not growth targeting. But the Fed isn’t targeting NGDP so that’s a moot point. Given what they are targeting, a shift to average targeting would mean easier money.

    Rayward, I would never ban Ray, he’s my favorite troll. I have too much fun picking on his stupidity.

    Travis, Sorry, I fixed it.

    Thoamas. No, it’s a random walk under symmetric targeting, but not under level targeting.

    Depositors paid a lot of attention to bank riskiness in the 1920s. Now they pay no attention. What’s your explanation?

  21. Gravatar of Ray Lopez Ray Lopez
    12. February 2020 at 12:15

    @SSumner – (RayLopez):”PS–of course I know what money neutrality is.” (SSumner): Then why claim the Indian case shows money neutrality, when prices didn’t move with the money supply? – OMG. You’re dyslexic. Now I understand our failed interactions over the years. Sorry for not picking up on this earlier, my apologies. FYI, “money neutrality” means a change in money supply may or may not change prices, and even nominal GDP, but it has no effect on real output (real GDP). Money NON-neutrality is the opposite: that a change in money changes NGDP and in turn, due to money illusion and sticky prices, changes RGDP (real GDP). OMG, I have to tell you this? I hope this post is deleted or those folks in the Fed who briefly considered adding you as a member don’t read this… (BTW since I believe money is always and everywhere neutral, I would not mind if you ran monetary policy, it would be like those betters in Korean pachinko machines who think fiddling with the knobs effects the little balls, when in fact it does (almost) nothing at all. *Almost, since I’ve heard from some that the knobs sometimes do have a small, almost trivial effect on the trajectory of the balls.

    @Benjamin Cole -I was thinking that long before Modern Monetary Theory was in vogue, you helped popularize it, though I’m sure it was formulated before your posts. You’re still bat shiite crazy and wrong about the Japanese in Manchuria (slave labor pays, regardless of the money supply, see Robert Fogel and Stanley L. Engerman)

    @Gene Frenkle – you’re a nutter, like “Major Freedom” used to be on this site, but I tip my hat to you for mentioning the First Law of Thermo (BTW, can you explain the Second Law? Because nobody, even pro physicists, can, though I’m pretty sure you are confident in your answer). FYI, “single indicators” of recessions are discredited. Due to rising prices and the fact prices fall rapidly during a recession, it’s almost always true that high prices precede a recession. Hence, not just oil prices spike but nearly everything, including the price of butter in Bangladesh. FYI also, one of the pioneers of fracking in Texas was a Greek-American (like me, who is also rich, in the 1%, min net worth >= $10M) Bye.

    @rayward – thanks. Some of my ancestors were the first Greeks in the Deep South, well over 100 years ago. They also pioneered certain famous industries but since it’s a small world I won’t mention names. Some of them are still down there, in several states (AR, TX, SC, AL). One of them, that I’ve never met, I saw in a national publication, they are much higher than in the 1%, good for them.

  22. Gravatar of ssumner ssumner
    12. February 2020 at 13:09

    Ray, Money neutrality means a change in the quantity of money doesn’t change any real variable.

  23. Gravatar of Gene Frenkle Gene Frenkle
    12. February 2020 at 13:35

    Ray Lopez, thank you for replying to me and revealing the depth of your ignorance. From 2001-2008 all of the major commodities increased in price and global supply except one…OIL. In America natural gas price in increased but supply did not increase until after it was too late in 2008. Furthermore it wasn’t until 2009 that fracking was proven economically viable in the face of lower prices.

    Here are a couple of quotes from Lee Raymond and Rex Tillerson from 2005 to give you a snapshot of why businesses were not taking advantage of cheap credit from 2001-2008…because we were in the midst of an energy crisis that Fortune 500 CEOs did not believe we had a satisfactory solution to.

    “Gas production has peaked in North America,” Chief Executive Lee Raymond told reporters at the Reuters Energy Summit.

    Asked whether production would continue to decline even if two huge arctic gas pipeline projects were built, Raymond said, “I think that’s a fair statement, unless there’s some huge find that nobody has any idea where it would be.”

    https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSN2163310420050621

    Turning to LNG, we are well positioned with our partnership with Qatar Petroleum to bring gas to the US Gulf Coast. And we are well advanced in permitting three receiving and regasification terminals there. We anticipate participating in at least two billion cubic feet per day of LNG sales to the US by the end of this decade.

    https://www.sec.gov/Archives/edgar/data/34088/000119312505050581/dex991.htm

  24. Gravatar of Benjamin Cole Benjamin Cole
    12. February 2020 at 16:54

    “The current low level of interest rates “means that it would be important for fiscal policy to support the economy if it weakens,” he (Chairman Powell) the House Financial Services Committee on Tuesday.”

    —30—

    This is covered in Sumner’s econ blog, but I am banned for life from there.

    Thus Powell joins the chorus of global central bankers pleading impotence in the face of the next recession. The bankers seem to be saying that interest rates are near zero bound and quantitative easing is weak tea, ergo, we must run large fiscal deficits.

    I think there is a great deal of truth in the perceptions of central bankers. (Let it also be said that central bankers have a near-monomaniacal obsession with inflation, and a predilection for tight money.)

    As capital markets are heavily glutted, probably federal fiscal deficits will work, and not only that, will work in the geographically defined area we call the United States.That is, the extra spending will take place inside US borders (Well, except for military boondoggles.)

    In contrast, Fed quantitative easing works upon globalized capital markets. To inflate the US economic balloon, the Federal Reserve attempts to lower atmospheric pressure is globally.

    Okay, so central bankers and the Fed are throwing the ball back into the Fiscal Court.

    But why fiscal deficits, and why not simple money-financed fiscal programs?

  25. Gravatar of BingoBoingo BingoBoingo
    12. February 2020 at 17:01

    With the ongoing stealth QE to keep the repo market from breaking things… this business cycle could have a very ugly end. Sooner, probably less painful than later. Doing monetary policy in the manner of Argentina is eventually going to have Argentine like results.

  26. Gravatar of Christian List Christian List
    12. February 2020 at 18:20

    @Benjamin Cole

    But why fiscal deficits, and why not simple money-financed fiscal programs?

    Scott has certainly explained this a 100 times and he can do it better than I can. I think it goes something like this: the scope for real monetization is very limited. Either the printed money is far too little for relevant fiscal policy or you print a relevant amount of money but then you get quite “a bit” of inflation. What do you not understand after als these years of reading this blog???

  27. Gravatar of Ray Lopez Ray Lopez
    12. February 2020 at 18:24

    @ssumner- your prose doesn’t always match what you’re trying to teach. I hope you weren’t a hard grader in uni. See below for an example.

    (A) Sumner: Ray, You said: “PS–of course I know what money neutrality is.” Then why claim the Indian case shows money neutrality, when prices didn’t move with the money supply

    (B) Sumner: Ray, Money neutrality means a change in the quantity of money doesn’t change any real variable.

    I posit (A) doesn’t jive with (B). (A) is a non-sequitur. I agree that (B) is the true definition of money neutrality, just like I implied all along. Bye.

  28. Gravatar of ssumner ssumner
    13. February 2020 at 08:36

    Ben, Any comment on my Econlog post?

    Ray, But you just admitted that the real quantity of money in India changed dramatically, as did velocity. Those are real variables.

  29. Gravatar of Thaomas Thaomas
    13. February 2020 at 09:53

    Thaomas: I cannot understand how aiming at a symmetric inflation rate can be different from price level targeting

    Scott: No, it’s a random walk under symmetric targeting, but not under level targeting.

    Granted they are empirically distinguishable, ex post, but (with the same “right” model used for either rate or level targeting) the mean is the same, variance the same.(?) Which would more quickly create a market expectation of the new mean? Which creates the smaller variance in the expectation of the price level 2, 3, 5, 10 years in the future? Do you see any advantage to rate targeting vis a vis level targeting?

  30. Gravatar of Ray Lopez Ray Lopez
    13. February 2020 at 21:52

    @Sumner – “Ray, But you just admitted that the real quantity of money in India changed dramatically, as did velocity. Those are real variables.” – please don’t put words in my mouth, that I didn’t say, that’s the job of both Ben and I. We’re trolls, are you?

    Your position that the Indian demonetization ‘did not work’ because velocity changed is of course a metaphysical tautology, as you no doubt have realized by now in your heart of hearts, and no doubt have secretly muttered in your sleep. In any event, note that fiscal policy seems to work just fine to change real variables (“Second, the unemployment rate begins to rise steeply in India after the introduction of the Goods and Services Tax reform [i.e., HIGHER TAXES PAID]” – above) in a one-to-one fashion, while monetary policy fails in India except during such times that you, Scott Sumner, say so. Again, metaphysics. Kind of like my claim about FDR’s radio talks vs devaluing the gold dollar in 1933. Which was a bigger factor? By your own logic and words, it’s whatever anybody decides, ex post, was the ‘real’ factor. In that case, I deem radio > gold, and animal spirits not monetary policy was the reason the USA escaped the bank panic of the early Great Depression. Bye.

  31. Gravatar of Larry Larry
    14. February 2020 at 18:42

    Wondering what you think about Shelton’s claims about monetary policy and productivity? About chaotic currency values? About MP and malinvestment?

  32. Gravatar of ssumner ssumner
    16. February 2020 at 11:42

    Larry, I disagree with her on most of that stuff.

    Ray, You said:

    “Your position that the Indian demonetization ‘did not work’ because velocity changed”

    No, that’s not my position.

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