What You Don't Know Can Hurt You: Knowledge Problems in Monetary Policy

Salter, Alexander William; Smith, Daniel J.

doi:10.1111/coep.12219

Cited by 12 publications

(3 citation statements)

References 33 publications

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“…Moreover, consider the technical problem of how to appropriately measure economic conditions. For the fiscal authority, it will be unclear how to gauge the state of the economy at any given time, especially since most tools feature measurement lags and there still exist substantial disagreements about how to measure inflation and economic growth (Salter & Smith, 2017, p. 509). Moreover, the policy tools open to a fiscal authority are practically limitless.…”

Section: Fiscal Versus Monetary Policy: a Monetary Constitution Approachmentioning

confidence: 99%

On price stability with a job guarantee

Mejia

Albrecht

2022

Contemporary Economic Policy

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Modern Money Theory (MMT) has risen to prominence in popular policy debates within macroeconomics. MMT economists argue for creating a job guarantee program, which they argue would generate price stability. Using a benchmark model of time consistency supplemented with a job guarantee, we conclude that once policymakers' incentives are considered, the job guarantee does nothing to help stabilize prices. We compare this program to a competing proposal to maintain price stability and full employment, NGDP targeting.

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Section: Fiscal Versus Monetary Policy: a Monetary Constitution Approachmentioning

confidence: 99%

On price stability with a job guarantee

Mejia

Albrecht

2022

Contemporary Economic Policy

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“…Some scholars have used the Austrian business cycle theory to explain the Great Recession (O'Driscoll 2009;White 2009;Boettke and Luther 2010;Horwitz and Luther 2011;Koppl 2014). Others have employed Austrian insights to consider the effectiveness of monetary and macroprudential policies (Garrison 2009;White 2010;Selgin 2010;Salter 2016;Salter and Smith 2017;Salter and Tarko 2017). Moreover, as Koppl and Luther (2012) and Cachanosky and Salter (2017) make clear, these efforts have not been limited to self-ascribed Austrians.…”

Section: Introductionmentioning

confidence: 99%

Austrian Macroeconomics in Search of Its Uniqueness

Luther

McElyea

2018

SSRN Journal

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We consider the essential features of an Austrian macroeconomic model and then ask whether these features are unique. We argue that the temporal aspect of the structure of production is not an essential feature. Malinvestments in any dimension (e.g., time, geography, type, etc.) can generate the predicted boom-bust cycle so long as there are costs to reallocation. However, the view that nominal shocks have long-term consequences because costs are incurred to remedy past mistakes is not uniquely Austrian. In particular, we note similarities with the New Keynesian notion of hysteresis.

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“…Technical problems, at least in theory, are solvable. But central bankers also face unsurmountable knowledge problems (Salter and Smith 2017). Unlike technical problems, knowledge problems do not have solutions.…”

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confidence: 99%

Knowledge Problems with Discretionary Monetary Policy

Boettke

Salter

Smith

2021

Money and the Rule of Law

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When questioned by US Representative Alexandria Ocasio-Cortez about the Federal Reserve's inaccurate forecasts of long-run unemployment, Chairman Powell replied, "We have learned thatyou can't identifythis is something you can't identify directly. I think we have learned its [the natural rate of unemployment] lower than we thoughtit's substantially lower than we thought" (C-Span 2019). This was a surprisingly candid admission of the limits of expert knowledge by the head of one of the most important central banks in the world. 1 The reason this matters is because the natural rate of unemployment (along with the natural rate of interest) is an important metric guiding both ordinary and extraordinary monetary policies. Chairman Powell acknowledged that we cannot directly observe or predict these natural rates in a changing economy. In more detailed remarks, Powell (2019a), referring to the tendency of economists to label these metrics as u* (natural rate of unemployment) and r* (natural rate of interest), explains, "Unlike celestial stars, these stars move unpredictably and cannot be directly observed. We must judge their locations as best we can based on incoming data and then add an element of risk management to be able to use them as guides." While both u* and r* were once thought to be roughly stable, recent changes in the economy have made it clear that they are far more 1 Chairman Powell's frankness earned him both criticism and praise. For example, Williamson (2019) writes in response, "There's a lot Powell doesn't know, and it shows." Cochrane (2019b), responding to Williamson, writes, "I would much rather have Powell's healthily acknowledged uncertainty than a PhD economist who thinks he or she 'knows' how the Phillips curve really works." 22 of use, available at https://www.cambridge.org/core/terms.

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What You Don't Know Can Hurt You: Knowledge Problems in Monetary Policy

Cited by 12 publications

References 33 publications

On price stability with a job guarantee

On price stability with a job guarantee

Austrian Macroeconomics in Search of Its Uniqueness

Knowledge Problems with Discretionary Monetary Policy

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