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Thursday, August 01, 2013

'For the Birds'

Paul Krugman agrees with Tim Duy:

For The Birds: Neil Irwin urges us to stop talking about inflation hawks and doves. Tim Duy agrees that the terminology is misleading, but admits that it’s not going to change, so that we should focus on clarifying what the distinction really means. And I’d like to second that.
For the hawks/doves divide at the Fed, and more broadly, isn’t really about inflation tolerance. Nor is it about toughness, about being willing to do what needs to be done. It’s about economic models. ...
The ... hawks believe in immaculate inflation — they believe that a large Fed balance sheet can translate into an inflation surge even with the economy depressed.
It’s not clear how they think this would work; who, exactly, is going to raise prices in the face of all that economic slack? At some level, however, I think the hawks view what we’re going through as a supply-side phenomenon; they don’t really believe that we are suffering from a demand shortfall, and they also don’t seem to think that the zero lower bound makes any difference.
And the crucial point is that they have been wrong every step of the way, but keep demanding monetary tightening anyway.
So the hawks aren’t people willing to do what needs to be done; they’re people with a strange compulsion to do what doesn’t need to be done. And that’s why we need more doves at the Fed.

    Posted by on Thursday, August 1, 2013 at 02:25 PM in Economics, Monetary Policy | Permalink  Comments (71)


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