What would Michael Woodford say?

Or rather what did he say?  He is (justifiedly) considered one of the high priests of monetary expansion.  Yet when it comes to recent events:

 He welcomes the Fed’s intention to taper off its purchases of Treasury securities and mortgage debt, though he says the central bank could be clearer about the rationale.

“As the Fed’s balance sheet gets bigger, the bar to justify additional purchases does start getting higher,” Woodford says. “This could have been made clearer from the beginning, avoiding confusion about the significance of tapering now.”

The full story is here.

Comments

'the bar to justify additional purchases does start getting higher' - as the currency goes into the dumpster, that is.

I don't normally associate prior_approval with ignorant inflation doom-saying, is this due to the influence of Germany?

Putting currency in the dumpster stimulates the economy, because it increases demand for garbage collection services. Especially if the dumpster is already partly full of broken window glass.

I think that the Germans are perfectly right on this. Regardless of the short-term effects, currency inflation undermines the trust of the public in the long run.

The dollar has so far had enormous social capital to lean on, being a stable currency for a few centuries. Nevertheless, even social capital is finite in supply, and you can only dilute it so much.

I believe that inability/impossibility of including immaterial social capital into the computations is one of the reasons why economics is fundamentally flawed and its predictive results are unimpressive.

I'm sorry, increasing inflation to your stated 2% target (which is still much lower than the average over any recent substantial time horizon) will undermine public trust? The problem with inflation mongers is that you just can't construct an actual statement of their views that sounds plausible. It's just too absurd of a position.

Why is he not being considered for the FED Chair job?

Why isn't Woodford being considered for the Fed Chairmanship?

The 'bar' should be how much money do we need? If we have inflation we need less money, if we have little inflation and high unemployment we need more money.

This new 'bar' based on the Fed's balance sheet seems to be less about economics and more about getting spooked by supposedly magic numbers. For example, we've been told a deficit of a trillion dollars is a 'spookey' number. Debt/GDP ratio of 90% is a 'spookey number'. A stimulus program of more than $1T is likewise 'spookey'. Now a Fed balance sheet over unclear amount takes on some magically evil properties?

I can understand that the Fed might want to steer clear of certain types of monetary expansion (such as buying less mortgage debt and reverting back to government debt), but the size of the Fed's balance sheet has no clear relationship that I can see to much of anything that really should matter.

"Putting currency in the dumpster..." Well actually just printing money and dropping it from a helicopter would not increase the Fed's balance sheet since the Fed would not be buying any assets with it. IMO one nice thing about expanding the Fed's balance sheet is all the Fed has to do when it wants to shrink currency is stop buying. The piles of bonds it holds automatically suck cash out of the economy every time a coupon payment is made.

Well, it sounds like this is a stock versus flow question. Is it the rate of bonds purchased or the amount outstanding? It seems like the markets feel that it is the former, but it is a reasonable question to ask.

Woodford has become one of the high priests of expansionary monetary policy, not monetary expansion. There's a difference, at least in Woodford's view. He has always felt that Bernanke-style balance sheet expansion became mostly ineffective at the zero lower bound. Instead, he favors prolonged low interest rates combined with better forward guidance. He has proposed that the Fed commit to a monetary rule that targets an output-gap-adjusted price level target (not to be confused with an NGDP target, which Bloomberg incorrectly claims he supports), which would imply zero interest rates for quite some time to come.

Clicking through to the article, he also seems to make an offhand comment about "returning total economic output — nominal gross domestic product, in economist parlance — back to the trend it would have been on if the recession hadn’t occurred". I wonder if that's important or anything.

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