Karl Smith Is Shirll

Karl Smith:

Stephen Williamson’s Baffling Conjecture: I, for the life of me, can not understand where Stephen Williamson is coming from in the recent posts he’s done claiming that Quantitative Easing is ineffective, and that the Fed is completely out of tools which it can use to boost the economy.... [It] simply baffles me.... [T]he blanket statement that monetary policy causes inflation is misleading.... In recessions... an accommodative monetary policy which shifts the AD curve to the right would result in much higher output growth than inflation.... [W]hy would Ben Bernanke be worried about headline inflation when nearly every forecast from the Federal Reserve views the current rise in headline as temporary?... Is Williamson advocating tightening policy while NGDP is still FAR below trend, and we are not experiencing enough growth to catch up to the previous trend?... [T]he fourth point is the one that floored me the most. I’ll outsource commentary to David Beckworth....

Steve,

Why do you keep saying there is nothing the Fed can do? You acknowledged in the comment section in your last post that the Fed could do something more via a price level or ngdp level target. By more forcefully shaping nominal expectations with such a rule the Fed could do a lot.... [F]olks were saying the same thing about monetary policy in the early 1930s.... Then FDR came along and change expectations by devaluing the gold content of the dollar and by not sterilizing gold inflows. His “unconventional” monetary policy packed quite a punch...