Who Do You Find More Persausive?

Scott Sumner and John Cochrane discuss the financial crisis.   Look especially at around the 8 minute mark, where Cochrane challenges Sumner's idea that the Fed wasn't aggressive enough, and Sumner responses.

Comments

[jfk]

Did you listen to the whole thing? I don't think there was much disagreement between them.

[Josh Hendrickson]

Pete,

If you really liked this debate, you will perhaps really enjoy the panel that I have put together for the SEA meetings entitled, "Nominal Income Targeting, the Productivity Norm, and Monetary Stability." It features George Selgin, Scott Sumner, David Beckworth, and myself.

[K Sralla]

Cochrane's point was key to this whole discussion. Even if the fed had the ability to somehow divine the correct policy, it does not follow that they then have the potency to effectively carry out such a policy in a way that maintains economic equilibrium.

The irony of this entire conversation is that on display are two very smart monetarists, and they cannot even agree whether the Fed policy was contractionary or inflationary. Who then is smart enough to know?

[Bill Woolsey]

Cochrane insisted that monetary policy _means_ creating or destroying bank reserves using open market operations in T-bills. This is little better than the Keynesian identification of monetary policy with targets for the Federal Funds rate. Both approaches confuse recent Fed practice with monetary policy.

Furthermore, Cochrane is very concerned about how changes in Fed policy will impact interest rates and bank lending. Suggesting that he cannot break away from Federal Reserve practice--targetting interest rates.

Sumner identifies monetary policy with changes in the quantity of base money, regardless of how the Fed causes base money to change. He correctly notes that comparing current levels of base money to past levels tells us nothing with the demand for base money can change.

But Sumner continually falls back into accomodating the mainstream desire to describe proper policy in terms of inflationary expectations, rather than sticking to nominal income targetting.