CIS Winter Policy magazine

By Matt Nolan 25/07/2013

Via Stephen Kirchner I see the latest issue of the CIS Policy magazine has a new issue – the Winter 2013 one.  I’ve contributed to this one, so I thought I’d point out that I’m blabbing on about exchange rates, inflation targets, and the neutrality of money – party times.

I didn’t realise Scott Sumner was contributing with a primer on new market monetarism, that is pretty cool.  Sounds like he is also going to be in Australia in a month’s time – any Aussie readers should definitely go along!

For me, all our debates about monetary policy boil down to our assumptions around the long-term neutrality of money – and the mechanism via which money is both non-neutral over one time horizon but neutral over another.  This is an old debate, and true difference between heterodox and mainstream is the view of long-term money neutrality (anti for heterodox, pro for mainstream).  When I heard John Quiggin at NZAE13, this was effectively the case he wanted to build – and when I’ve had comment discussions on the blog from MMT (modern monetary theorists) that has been my interpretation as well.

There is a lot of economic history, and then empirical work (through the 1980s and 1990s), out there discussing all this – that is one area where a load of blog ink could be spilled :)

My personal view?  LR neutrality will hold except in the rare case where a shock (where I’m thinking of a shock not just the innovation itself – but includes a policy error due to timing) is large enough to see the economy co-ordinate in a “inferior” equilibrium.  I’d note that NGDP targeting deals with these cases.  And yes, this sounds like Noah Smith’s view of Japan – but I swear this was the view I was taught at university, or at least how I ended up interpreting it ;)