Joe Gagnon’s Radical Idea

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"Joe Gagnon’s Radical Idea"

Please go read Joe Gagnon’s latest post on the case for more robust monetary stimulus. His specific proposal—massive bond purchases by the Fed, the ECB, and the Bank of Japan—are considered radical these days. But in more general terms his ideas should be considered the very reverse of radical. His idea is that central banks that are undershooting their inflation targets, as the Fed, the ECB, and the BOJ are, ought to take measures to come closer to target. But in the UK, where inflation is above target, policymakers ought to stand pat and be ready to tighten if necessary.

The conventional wisdom has somehow gotten to be that these inflation targets don’t really need to be taken seriously, even though undershooting them is contributing to mass unemployment and generally depressed living standards. But why?

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