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Tuesday, October 13, 2015

'Global Dovishness'

Paul Krugman:

Global Dovishness: Tim Duy points us to a striking speech by Lael Brainard, who recently joined the Fed Board of Governors, which takes a notably more dovish line than we’ve been hearing from Yellen and Fischer. Basically, Brainard comes down on the ... precautionary principle side of the debate, arguing that given uncertainty about the path of the natural rate of interest, and great asymmetry in the consequences of moving too soon versus too late, rate hikes should be put on hold until you see the whites of inflation’s eyes.

Why does she sound so different from Fischer and Yellen? Duy argues that it is in part a generational thing...

Maybe, but it’s also worth noting the difference in perspective that comes from having your original intellectual home in international versus domestic macroeconomics. I would say that Brainard’s experience is dominated not so much by the Great Moderation as by the Asian financial crisis and Japan’s stagnation; internationally oriented macro types were aware earlier than most that Depression-type issues never went away. And if you read Brainard’s argument carefully, she devotes a lot of it to the drag America may be facing from weakness abroad and the stronger dollar, which acts as de facto monetary tightening...

So does her speech matter? She is, as I indicated, pretty much saying what some of us on the outside have been saying, although she does it very clearly and well; but does it make a difference that someone on the inside is laying down a marker warning that raising rates could be a big mistake? I guess we’ll see.

    Posted by on Tuesday, October 13, 2015 at 10:03 AM in Economics, Monetary Policy | Permalink  Comments (75)


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