John Cochrane on precommitment

A very interesting post.  Here is one excerpt:

Mike’s enthusiasm for deliberate inflation is even more puzzling to me.  Mike uses the word “stimulus,” never differentiating between real and nominal stimulus. Surely, we don’t want to cook up some inflation just for its own sake — we want to cook up some inflation because we think it will goose output. But why? Why especially will increasing expected inflation help? Because that is the aim of all the policies under discussion here — promising to keep rates low even once inflation rises, adopting “nominal GDP targets,” helicopter drops, or similar policies such as raising the inflation target.

I don’t put much faith in Phillips curves to start with  — the idea that deliberate inflation raises output. I put less faith in the idea floating around Jackson hole that a little inflation will set us permanently back on the trend line, not just be a little sugar rush and then back to sclerosis.

But nobody has a Phillips curve in which raising expected inflation is a good thing.  It just gives you more inflation, with if anything less output and employment. Read Mike’s book!


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