Sumner always says yes, or he says it's "roughly zero" so if you say he says it;s zero he can complain you're misrepresenting his views. A very interesting post by Brad Delong qualifies this claim of Sumner's.
http://delong.typepad.com/sdj/2012/03/the-changing-multiplier-since-1925.html
The answer is that of course it is zero, if the Fed is committed to very low inflation. That qualifier is important. Sumner usually states this as it's zero "if the Fed is doing it's job" but note that's a value judgement. We've had a different understanding of what it means for the Fed to do it's jobs at different times.
"The largest shifts in economists’s views of what the value of the multiplier is over the last eighty or so years have been the result not of changing views about the structure of demand, but rather of changing views about the conduct of monetary policy."
That's the kicker-it depends what the understanding of the conduct of monetary policy is, ie, what it means for the Fed to do its job.
Many Market Monetarists are very critical of Fed policy since 2008-especially I'm thinking of Marcus Nunes who thinks Beranke's Fed has been an umitigated disaster. In general they think that Bernanke's Fed got us here through tight money. The irony is that this current regime has the same outlook it had during the years of the Great Moderation.
The focus has been on low inflation to the exclusion of any real concern about employment. According to Delong we've been through 5 different monetary regimes since 1937. He also says that the IS-LM model is the best way to summarize these issues. That will please Sumner too who is always knocking IS-LM. This is why we have the year 1937-since Hicks developed IS-LM.
Delong gives the 5 regimes not in historical but logical order. There's the Monetary Dominance regime: LS-MD. In this regime the fiscal multiplier is roughly zero. This is what Sumner has in mind. He doesn't however consider that we could have another regime again.
Next is the Friedman Rule regime. Friedman himself allowed that under his rule the fiscal multiplier may not be zero, but he did insist it would not be large enough to matter. So the multiplier is not zero under the Friedman Rule but it is pretty small-how small has been debated.
Next is the Gold Standard regime and here the fiscal multiplier is finally moderate-it's nonexistent under Monetary Dominance and puny under the Friedman Rule.
Fourth is the central bank that targets the real rate of interest. Here the multiplier finally gets quite healthy.
Finally there is the famous zero-bound
. "Under all the other monetary policy régimes the monetary authority could, if it thought wise, shift the MP or LM curve to provide further monetary expansion. Under monetary dominance it would simply change its near-future real GDP target. Under the Friedman rule it would boost the money stock growth rate. Under a gold standard it could sell some of its own gold holdings or change the gold parity. Under a constant real interest rate regime it could change the target real interest rate."
"But at the zero nominal lower bound the monetary authority’s available tools are much weaker, and active monetary policy seems likely to be of limited effectiveness."
On the other hand under ZB regime fiscal stimulus carries the most benefit. Delong has also pointed out that at this point creditors are willing to pay us for our Treasuries so this is an excellent time to borrow as well, contrary to what the deficit hawks tell us.
Mike. You said:
ReplyDeleteMany Market Monetarists are very critical of Fed policy since 2008-especially I'm thinking of Marcus Nunes who thinks Beranke's Fed has been an umitigated disaster. In general they think that Bernanke's Fed got us here through tight money. The irony is that this current regime has the same outlook it had during the years of the Great Moderation.
I believe comments should be short, so here goes:
1. Not just many but all MM´s are very critical…
2. I think Bernanke has been an unmitigated disaster, especially relative to the academic Bernanke. In 2009 I “dug out” his Japan “Self-induced paralysis” piece and sent it over to SS (at the time I didn´t blog) and it became an immediate “success” in the blogosphere.
3. The “current regime” may have the same “outlook” but it is a completely different animal. What Greenspan did, even if unwittingly, was to keep NGDP evolving along a relatively stable level path. People still easily fall into what I call the “growth trap”, not realizing that the present situation, characterized by a DROP in NGDP last took place in 1938! The economy is DEEP INSIDE THE HOLE. And that could ONLY come about if money was extremely tight.