Thursday, April 11, 2013

Can someone help me understand why Scott Sumner thinks market monetarists are the only ones who can explain this?

Here.

Isn't the channel he cites right in the New Keynesian IS-curve? Isn't it pretty easy in Old Keynesianism by just noting that when we're moving to the right and out of the liquidity trap (hand-waving on the reasons in the Old Keynesian case), rates will rise? Isn't all this back in the Old Old Keynesianism of Keynes all over the place? Hasn't Krugman been pointing this out since the beginning of the crisis?

Once again I don't understand why Scott Sumner tries to make conflict where there is none. People who read the blog get a very distorted picture of exactly where everybody stands - much more so than some of the other market monetarists who are better about this, recognize the common ground, and advocate market monetarism on the basis of parsimony or some other advantage.

3 comments:

  1. I should strengthen this.

    It's not just "right in the New Keynesian IS curve". I thought that was the whole point of the NK IS curve, to bring this channel for monetary policy to the forefront. I thought that was the whole advantage over older IS curves. It's not as if you have to do intellectual backflips to get these results: it's the centerpiece of the model.

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  2. Even the Old Keynesian model predicts that an increase in expected inflation shifts the IS curve out (in nominal interest rate/output space) and so raises nominal rates (but by less than the increase in expected inflation, so the real rate falls). But maybe Sumner is thinking of Krugman's refrain that An icrease in the IS curve at the zero bound - with LM horizontal - won't raise the nominal interest rate?

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