BB and the Permahawks: Ben Bernanke comes down firmly against the idea that concerns about financial instability should lead central banks to raise interest rates even in a depressed economy. Good — and I was especially pleased to see him citing the Swedish example and the Ignoring of Lars Svensson as a case study.
One odd thing, however, is that I’m not at all sure that most people — even economists — would be able to figure out who, exactly, Bernanke is arguing with. And that is, I think, an important omission. We can and should have a pure economics debate about appropriate interest rate policy; but if we’re trying to understand the political economy — and we should, because this is about getting good decisions as well as good analysis — it is definitely relevant to note that the people making the financial stability argument for higher rates are permahawks, who keep coming up with new justifications for an unchanging policy demand. ...
Anyway, I think Ben Bernanke did us a bit of a disservice by not linking to whoever it is he’s arguing with. It would help to know that John Taylor and the BIS are on the other side, because this would let readers place their position here in context with their other positions.