Mr Krugman says:First of all, the liquidity trap is real; conventional monetary policy, it turns out, can't deal with really large negative shocks to demand.
"It will soon again be possible for the E.C.B. to concentrate on its real duty — monetary policy," said Michael Schröder, economist at the ZEW economic research institute in Germany.
In real terms, monetary policy had effectively been contractionary, putting downward pressure on output and employment, even though economists looking only at nominal rates thought monetary policy had been stimulative.
Anyone who follows real-world monetary policy is aware of a dirty little secret about what economists used to call the "transmission mechanism": interest rates don't have much direct effect on business investment.
It's why Romer and Romer, in their classic paper on the real effects of monetary policy, relied on a study of Fed minutes to identify major changes in policy.
He was to see to it that such economists periodically got a chance to present their ideas to the board and, equally, that the academic economists got a chance to learn more about the real problems of monetary policy.
Mr. Paul bragged about getting the political system to talk about "real cuts" in spending, monetary policy and the Federal Reserve.
He bragged about getting the political system to talk about "real cuts" in spending, monetary policy and the Federal Reserve.
Top marks for cynicism Beyond a bail-out Reprints Related items The real menaceMay 20th 1999 Monetary policy: The perils of pricking bubblesMay 14th 1998Mr Greenspan fields two arguments against trying to curb share prices with higher interest rates.
As the Fed eased monetary policy, real interest rates fell to zero, and the gold price rose to around $400 by the middle of 1993.
