This is really the main event in mainstream Macro these days. John Taylor's inflation targeting rule is under attack and this has led him to defend it. When you think about all these econoimsts-Sumner, Krugman, Stephen Williamson, Miles Kimball- and their debates it all centers around the TR and the ZLB.
The ZLB is what causes problems for the TR. Evidently this is the thing that Taylor didn't consider. All these various economists I listed above have a solution to the ZLB.
Krugman was the one that popularized the idea that the ZLB which had been thought impossible was not just possible but here. Sumner has a solution: move to NGDPLT. More recently, Kimball and SW have come up with solutions. Kimball's solution is about abandoning paper for electronic money-he argues in this case there's no more ZLB.
http://blog.supplysideliberal.com/tagged/money
SW's is fairly unorthodox-he thinks the answer is to raise interest rates. He explained this pretty succintly in a comment over at Tony Yates.
"If I think about policy in terms of pegging a short-term nominal interest rate, I understand that, if the nominal interest rate goes down, and stays there, that the short run effect is more inflation (that’s the liquidity effect at work), but in the long run the Fisher effect takes over, and inflation actually goes down. Again, the liquidity effect ultimately dissipates. So, suppose we have been at the ZLB for a long time. The liquidity effect has dissipated, and the inflation rate is too low. How do I get the inflation rate up? I certainly can’t rely on a short-run liquidity effect, as the nominal interest rate can’t go down. There’s nowhere to go but up, and to rely on the long-run Fisher effect to take over ultimately. Of course, you may have to bear the effects of even lower inflation in the short run because of the liquidity effect."
https://longandvariable.wordpress.com/2015/02/02/steve-williamson-on-taylor-rules/
Of course, Sumner's whole project is about overturning inflation targeting. If you look at all these guys they don't necedssarily agree-they disagree about a lot-but everyone seems ready for something beyond Taylor. As Ken Duda observes:
"The only person I hear singing the praises of the Taylor rule is Taylor."
http://www.themoneyillusion.com/?p=28674#comment-379911
No wonder he's getting nervous.
https://longandvariable.wordpress.com/2015/01/31/did-john-taylor-get-us-stuck-at-the-zlb/
http://www.themoneyillusion.com/?p=28667
As Tony Yates asks, 'Is John Taylor to Blame for the ZLB?'
UPDATE: I forgot to say that Stephen Williamson will have a natural experiment for his raising interest rates raising inflation rate soon as the Fed is expected to raise rates in the near future-though decidedly not for SW's 'Neo-Fisherite' reasons.
UPDATE 2.0: To underscore why Taylor would be nervous I should link this Krugman piece
http://krugman.blogs.nytimes.com/2015/01/31/bad-tayloring-2/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&_r=0
Taylor is in an unholy alliance with Republicans to impose a rule through Congress. He's desperate to convince everyone that it's not that the Taylor Rule failed but that Bernanke and friends failed to follow it adequately.
The ZLB is what causes problems for the TR. Evidently this is the thing that Taylor didn't consider. All these various economists I listed above have a solution to the ZLB.
Krugman was the one that popularized the idea that the ZLB which had been thought impossible was not just possible but here. Sumner has a solution: move to NGDPLT. More recently, Kimball and SW have come up with solutions. Kimball's solution is about abandoning paper for electronic money-he argues in this case there's no more ZLB.
http://blog.supplysideliberal.com/tagged/money
SW's is fairly unorthodox-he thinks the answer is to raise interest rates. He explained this pretty succintly in a comment over at Tony Yates.
"If I think about policy in terms of pegging a short-term nominal interest rate, I understand that, if the nominal interest rate goes down, and stays there, that the short run effect is more inflation (that’s the liquidity effect at work), but in the long run the Fisher effect takes over, and inflation actually goes down. Again, the liquidity effect ultimately dissipates. So, suppose we have been at the ZLB for a long time. The liquidity effect has dissipated, and the inflation rate is too low. How do I get the inflation rate up? I certainly can’t rely on a short-run liquidity effect, as the nominal interest rate can’t go down. There’s nowhere to go but up, and to rely on the long-run Fisher effect to take over ultimately. Of course, you may have to bear the effects of even lower inflation in the short run because of the liquidity effect."
https://longandvariable.wordpress.com/2015/02/02/steve-williamson-on-taylor-rules/
Of course, Sumner's whole project is about overturning inflation targeting. If you look at all these guys they don't necedssarily agree-they disagree about a lot-but everyone seems ready for something beyond Taylor. As Ken Duda observes:
"The only person I hear singing the praises of the Taylor rule is Taylor."
http://www.themoneyillusion.com/?p=28674#comment-379911
No wonder he's getting nervous.
https://longandvariable.wordpress.com/2015/01/31/did-john-taylor-get-us-stuck-at-the-zlb/
http://www.themoneyillusion.com/?p=28667
As Tony Yates asks, 'Is John Taylor to Blame for the ZLB?'
UPDATE: I forgot to say that Stephen Williamson will have a natural experiment for his raising interest rates raising inflation rate soon as the Fed is expected to raise rates in the near future-though decidedly not for SW's 'Neo-Fisherite' reasons.
UPDATE 2.0: To underscore why Taylor would be nervous I should link this Krugman piece
http://krugman.blogs.nytimes.com/2015/01/31/bad-tayloring-2/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&_r=0
Taylor is in an unholy alliance with Republicans to impose a rule through Congress. He's desperate to convince everyone that it's not that the Taylor Rule failed but that Bernanke and friends failed to follow it adequately.
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