Sumner Unimpressed With ECB Cutting IOR to Zero

       It's impossible to count how many times he's insisted that interest on reserves is contractionary. Now the ECB has taken them off so is Sumner pleased?

       "So why am I not happy? Because it’s not being done as monetary stimulus, but rather a coping mechanism. Central banks seem to be throwing in the towel, and saying; “We aren’t going to do anything to produce NGDP growth, so we’d better get interest rates to a level that is “equilibrium” in a zero growth society, a failed monetary regime."

         http://www.themoneyillusion.com/?p=15204#comment-167976

       As David Pearson in a comment pointed out, Sumner says he takes his cues from the markets, so what do the markets seem to be saying?

       "Stock markets in Europe have fallen since the ECB Deposit Rate cut to zero from 25bp. The Deposit Rate affects around $500b in bank reserves — not quite the level of our ER’s, but certainly enough to unleash velocity."

        "Meanwhile, the 2-yr bund yield went negative."

        "The Danish OMX index is up .3% in the two days since that central bank’s decision to implement a negative (-.2%) IOR."

        Possible conclusions:
        "-markets are inefficient, this is a big buying oppty."
        "-markets think a zero or -.2% IOR is immaterial"
        "-markets understand something that I don’t (a possibility I am readily willing to entertain)."

        http://www.themoneyillusion.com/?p=15135

         Of course while Sumner always tries to make Market Monetarism unfalsifiable, taking cues form the markets makes it so. So maybe this is why he is now claiming that "Yeah, the took away interest on reserves but they really didn't mean it"-it's the only way to explain why the European markets don't seem impressed.