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Thursday, June 2, 2011

Robert Lucas Believes in Spending Shocks

Robert Lucas has been taking some heat around cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 blogosphere for a lecture he gave at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 University of Washington.  Scott Sumner responds:
In a recent talk, Robert Lucas argued that a decline in “spending” (i.e. NGDP) produced cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 severe contractions of 1929-33 and 2008-09.  He argued that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 slow recoveries were caused by adverse supply-side polices.  This is not “classical” or RBC economics, it’s AS/AD.   I think he’s right about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Great Depression and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 recent contraction, but only about 30% right about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 current recovery (I attribute 70% of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 slow recovery to lack of NGDP growth.)  Oddly, Paul Krugman and Matt Yglesias seem to think that Lucas denies that demand shocks cause recessions–which is clearly not Lucas’s view.
Let me add to this discussion by noting that recently I met Robert Lucas at a conference.  We started talking and, among ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r things, he expressed his support for nominal GDP targeting because it would have given cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed more flexibility in responding to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 severe spending shocks.  That is, it would have allowed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed to have been more aggressive with monetary policy while still being systematic.  He was also sympacá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365tic to my view that currently cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re was too much concern about inflation.  At a conference dominated by inflation hawks, I found him to be a refreshing breath of fresh air.  

PS.  We also talked about his former student Scott Sumner and Sumner's proposal for NGDP futures targeting.  He was intrigued by it and compared it to Lars Svensson's work on targeting cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 forecast.

3 comments:

  1. Not much to disagree with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re - but 30%-70% - where does that come from? Is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re a quantitative model that delivers that...or is just plucking numbers from a body part that can't be mentioned on this family-friendly blog? Show me cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 quantitative model!

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  2. “it would have allowed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed to have been more aggressive with monetary policy..” I am baffled as to how cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed could have been significantly more aggressive. Yet more QE? About cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 only effect of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 INITIAL bouts of QE were to boost asset prices. More QE would have zero effect.

    The Fed could have implemented its not very effective “zero interest rate plus QE” policy earlier. My hunch is that that would have been not much more effective. In ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r words I’m saying that monetary policy can probably deal with mild recessions, but for serious recessions some fiscal help is needed.

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  3. Ralph
    One major problem is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fact that everyone (Fed included) gave up on MP early on. Now fiscal policy has done its damage and now MP (which is still tight) is seen as "stocking cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 inflation fires".
    DB
    I thought Lucas presentation was mostly about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 supply side...
    http://cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365faintofheart.wordpress.com/2011/06/02/lucas%c2%b4-tour-de-force/

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