ALL BLOG POSTS
The euro crisis continues, but the issues are not new. Already back in 2001 two of the most influential monetary economists ever debated the euro issue – and the question of fixed versus floating exchange rates. Milton Friedman represented the euro sceptic view, while Robert Mundell represented the pro euro view.
Fellow Market Montarist Bill Woolsey has an interesting proposal. He suggests that the Federal Reserve should adopt a policy of targeting "growth rates of nominal GDP from Reagan's 1983 and 1984 recovery from the recession of 1982". Bill can hardly be said to be an inflationist as he is in fact is in favour of a long-term target of 3% yearly NGDP growth in the US (that would likely lead to 0-1% inflation over the longer run), but he nonetheless favours returning US NGDP to the pre-crisis trend through more aggressive easing in a transitory period.
For readers who are unfamiliar with Market Monetarism I have a number of pieces of research that I would recommend, but everybody should start out by reading Robert Hetzel’s excellent and truly thought provoking paper “Monetary Policy in the 2008--2009 Recession”
Scott Sumner in an answer to me on his blog explains the difference between "old-style" monetarism and Market Monetarism:
One of my absolute favourite Working Papers is Douglas Irwin’s brilliant paper “Did France cause the Great Depression?”.
If one reads through the financial media on a random day it is likely that market participants will be quoted for saying that it is either a “risk on” or a “risk off” day in the markets. (Today surely looks like a risk off day, but that’s is irrelevant to the discussion below).
One way to study the reasons and the background for the Great Recession is to read Market Monetarist blogs. Another way is to read some quality economic research in economic journals and working papers.
Scott Sumner and other Market Monetarists forcefully argue that monetary policy can and should be used to return nominal GDP (NGDP) to it's pre-crisis growth path. In the US that is around 5% yearly NGDP growth from a level 12-14% above the present level.