Economists Are Wrong About What Went Wrong

With the economy seemingly improving, there's been a lot of talk this year about "Fexit" — when the Fed will begin to exit some of the aggressive stimulative actions that it's undertaken in the wake of the financial crisis. Currently the Fed is engaged in two big actions designed to ease monetary conditions. One is QE-unlimited, a promise to buy assets every month until conditions improve.

Narayana Kocherlakota is the head of the Minneapolis branch of the Federal Reserve, and he's one of the more intriguing figures in central banking. For a long time he argued that monetary stimulus could do verty little for the economy, since unemployment was largely structural.

Scott Sumner submits: In a recent post I argued that Milton Friedman would have been extremely critical of the Fed’s tight money policy since late 2008. I cited a number of factors, including: 1. He said in late 1997 that the ultra-low interest rates in Japan were actually a sign that money had been too tight.

Via a speech by Minnesota Fed president Narayana Kocherlakota, something that is too often forgotten in discussions of monetary policy, the long (and variable) lags between policy changes and the impact on the economy:

David Beckworth submits: Mathew Yglesias is making the case that the current stance of monetary policy is effectively tight. He invokes the term structure of interest rates to make his case.

The Federal Reserve chairman's first regular press conference in the US central bank's 98-year history was supposed to make more news when it was announced than when it actually took place. And so it proved. There was nothing much to rile the markets in Ben Bernanke's comments - on the dollar, interest rates or the US deficit.

|Peter Boettke|