The best argument for a more expansionary monetary policy?

It’s not very glorious or motivational, but here goes: the costs of inflation, within reasonable ranges, are not very high.

I am more agnostic about the gains from monetary expansion than are many of its advocates.  I think we do not know where the point of “potential output” lies, I think sticky nominal wages (especially for new labor market entrants and the unemployed) are overrated as a problem, I doubt the ability of the Fed to make credible commitments at this point, and often I view “hiring” as more of an multi-dimensional investment and longer-term commitment, which requires various variables to be set at the right places, not just the short-run real wage in spot markets.

A bit more personally or perhaps psychologically, the contrarian in me gets nervous when I read the ongoing ritual excoriation of Ben Bernanke in the blogosphere, every time the Fed decides to take no further major action.

Still, at the end of the day if we try further monetary expansion and it fails to stimulate employment, I don’t see a huge social cost to having a three or four percent rather than a two percent inflation rate.

Addendum: Arnold Kling offers related thoughts.  Ryan Avent also comments.  Scott Sumner replies.  Matt Yglesias comments.


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