Richard Clarida, FOMC nominee

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.


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