Richard Clarida, FOMC nominee

by on August 12, 2011 at 4:24 pm in Current Affairs, Economics, Uncategorized | Permalink

Here is his Wikipedia page.  Here is some bio.  Here is his 1999 survey on monetary policy.  Here is Google Scholar.  He is a very wise and very accomplished economist.  Here is his piece on what we’ve learned about monetary policy in the last decade, with special reference to the liquidity trap and zero bound.  Excerpt:

According to monetary theory, central banks have at least two powerful – and complementary – tools to reflate a depressed economy: printing money and supporting the nominal price of public and private debt. As Bernanke (2002) himself argues, a determined central bank can deploy both tools for as long as it wants regardless of 1) how credible its commitment is and 2) how expectations are formed or 3) how term or default premia are determined. There are two fundamental questions. First, can these tools, aggressively deployed, eventually generate sufficient expectations of inflation so that they lower real interest rates? Forward looking models generally predict that the answer is yes. However, the interplay between monetary policy and the yield curve can become complex when central banks are at the zero lower bound (Bhansali et. al. 2009) and central banks seek to provide a “deflation put.”

Also, as discussed above, given the prominent role that inflation expectations play in inflation dynamics, inflation inertia is the enemy of reflation once deflation sets in. A second question relates to the monetary transmission mechanism itself. In a neoclassical world that abstracts from financial frictions, a sufficiently low, potentially negative real interest rate can trigger a large enough inter-temporal shift in consumption and investment to close even a large output gap. But in a world where financial intermediation is essential, an impairment in intermediation – a credit crunch – can dilute or even negate the impact of real interest rates on aggregate demand. In the limiting case of a true liquidity trap, no level of the real interest rate is sufficient in and of itself to close the output gap and reflate the economy. Credit markets in the U.S. appear at this writing to be bifurcated.

There is more to say about Clarida but I have to run to dinner and the theater!

Basically I see it as that Obama and Bernanke have chosen two academics — two guys who think monetary policy really works, or at least can really work.  Odds are, they are Ben’s guys, and in my view that is good news.  By the way, Clarida I believe is a Republican.

Addendum: Dylan Matthews has good remarks.

Bill August 12, 2011 at 4:35 pm

“two guys who think monetary policy really works.”

The only two in the country.

dirk August 12, 2011 at 4:47 pm

Probably will be the only two on the Fed, at any rate.

Yancey Ward August 12, 2011 at 5:03 pm

When I read these plans and ideas of monetary theorists, I am often reminded of a video I once saw in which a home owner recorded his various attempts to keep a bird feeder from being robbed by squirrels. I wonder if these policies are failing because they don’t give nearly enough credit to the intelligence of those lowly human actors they are attempting to influence.

dirk August 12, 2011 at 5:52 pm

What is economics if not the study of lowly human actors?

Yancey Ward August 12, 2011 at 8:32 pm

But that is just it, they assume a behavior that doesn’t change. What I see in economic theory at the microlevel is a prediction that people will behave in way A, so that effect B arises. People are not that predictable because they learn, and it doesn’t even take a large number of those people learning and changing their behavior to alter the predicted outcome. So, in observation 2, economists predict a new outcome, but in the meantime some of those damnable human beings are already a step ahead of you. I doubt anyone is actually smart enough to get ahead of the curve by themselves, even if they were the freaking Einstein of economics. It would not even be enough to have an entire FOMC made of such geniuses.

Mike August 12, 2011 at 10:53 pm

Lucas Critique

Michael Cain August 12, 2011 at 6:00 pm

30 years ago, when the Fed created cheap money, there were limited channels into which it could flow, and those channels led directly to more hiring. Today, the flow is much less restricted. Until/unless the Fed is able to turn its cheap money into actual hiring, it is pushing on a string and all of its policies will be relatively ineffective.

dirk August 12, 2011 at 7:01 pm

The correlation between stock market movements and employment 3 quarters later remains pretty damn high. When earnings expectations rise you can be pretty sure that more hiring will follow.

Ken Rhodes August 12, 2011 at 7:58 pm

Would that be the correlation we saw between the huge jump in employment in 2010 following three quarters behind the giant recovery in the stock market in 2009?

Yancey Ward August 12, 2011 at 8:36 pm

Exactly the right question.

dirk August 13, 2011 at 5:07 am

Compare it to, say, a 10 year moving average of the stock market, to see what the market is doing compared to its long term trend. The stock market “recovery” in 2009 was nothing. It never got back to the previous average. The stock market has moved sideways for the past 10 years. Actually, we’re below where we were 10 years ago. Should we be surprised that employment is lower than it was 10 years ago if earnings expectations are lower than they were then?

earnings August 13, 2011 at 7:01 am

are mainly rising elsewhere in the world in stark contrast to the 70s etc

E. Barandiaran August 12, 2011 at 6:32 pm

Tyler, enjoy the theatre. Hope that during the weekend you have time to write a detailed post explaining:

(1) what you mean by monetary policy can really work by defining clearly the instrument(s) and the objective(s) of such a policy given the institutional constraints on the Fed’s authority, and

(2) under what institutional and market conditions monetary policy is effective (make clear, among other factors, how relevant the integration of the U.S. economy in the world market economy is for such effectiveness).

Please, don’t use the word “money” without defining clearly its meaning and making clear how close-to-perfect substitutes the components of an aggregate are. And please don’t outsource the homework to Scott Sumner.

Mike August 12, 2011 at 10:57 pm

The whole idea of monetary policy is that you dont clearly define the instrument or objectives because you must fool everyone.

The policy is most effective when the policy maker doesnt even know what he’s trying to do. It also helps him avoid responsibility for failure.

“Failure to do what?” he says.

Eric Rasmusen August 12, 2011 at 9:28 pm

What great picks! Is it Obama and Bernanke who pick them, or just Bernanke? If Obama does the appointing, I commend him for delegating his choice to Bernanke— or if Obama did it on his own, that’s even better news.

Mike August 12, 2011 at 10:59 pm

Im convinced the way out of this crisis is for the government to buy lots of lottery tickets.

E. Barandiaran August 13, 2011 at 6:57 am

Tyler, by pointing to Matthews’ remarks that add nothing to what you have already said, I see that you’re making fun of Clarida and Stein. Yes, we agree that they are good scholars, but you are pointing to the old Tom Sowell’s saying: good to write a paper about how to milk a cow, but unable to bring milk from the barn.

Matthew C. August 13, 2011 at 7:11 am

Yes, we don’t need more academics at the Fed. I’d love to see people on the Fed who predicted the global financial crisis before 2008, and who predicted the failure of monetary and fiscal policy responses since then to accomplish anything other than trash the dollar and send loose money into equity and commodity markets.

Vangel August 13, 2011 at 10:51 am

Two guys who believe that central planners can guide an economy. Why is that good newsÉ

Peter Schaeffer August 16, 2011 at 2:09 pm

Sorry folks. This is a formatting test. Please delete.

Math – Grade 8 – 2009 (

All Students White Black Hispanic Asian
CA 270 289 250 256 294
TX 287 301 272 277 313
US 282 292 260 266 300

Peter Schaeffer August 16, 2011 at 2:10 pm

Sorry folks. This is a formatting test. Please delete.
Math – Grade 8 – 2009 (

All Students White Black Hispanic Asian

CA 270 289 250 256 294

TX 287 301 272 277 313

US 282 292 260 266 300

Peter Schaeffer August 16, 2011 at 2:11 pm

Sorry folks. This is a formatting test. Please delete.

CA 270 289 250 256 294
TX 287 301 272 277 313
US 282 292 260 266 300

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