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I might be a complete monetary nerd, but I truly happy when I receive a new working paper in the mail from Douglas Irwin on Gustav Cassel. That happened tonight. I have been waiting for the final version of the paper for a couple weeks. Doug was so nice to send me a “preview” a couple a weeks ago. However, now the paper has been published on Dartmouth College’s website.
Scott Sumner has long argued that the Federal Reserve or the US Treasury should help set-up a NGDP futures markets and conduct monetary policy based on market expectations of NGDP. This is a great idea, but so far it does not really look like the Fed is interested in the idea.
Market attention has changed from Greece to Italy. As in Greece the centre of attention is the dual concerns of public finance trouble and political uncertainty.
I guess George Selgin is right - Milton Friedman at the end of his life had come to the conclusion that the Federal Reserve should be abolished. See for yourself here. This is six months before his death in 2006.
How often have you heard it? Monetary policy is impotent because interest rates are very low and if you increase the money base banks will just hoard all the money and will not lend out anything. Market Monetarists of course know that this is nonsense, but we have all also tried to explain this to people that seem unable to listen to the arguments.
A distinct feature of Market Monetarist thinking is that our starting point for monetary analysis is nominal income and that monetary policy determines nominal income or nominal GDP (NGDP). This is contrary to New Keynesian analysis where monetary policy determines real GDP, which in turn determines inflation via a Phillips curve.
In a recent comment Dan Alpert argues that Milton Friedman would be against NGDP targeting. I have the exact opposite view and I am increasingly convinced that Milton Friedman would be a strong supporter of NGDP targeting.
As Greek Prime Minister George Papandreou is fighting to putting together a new government after he yesterday survived a no-confidence vote in the Greek parliament I am once again reminded by the Argentine crisis of 2001-2002.