Last month, I had the pleasure of hearing Christy Romer give a great talk about Japanese monetary policy at the NBER Macro Annual conference.  You can now read it here.

In a recent blog post, Paul Krugman writes:

This is probably a true statement.  It is not that other books don't cover the topic, however.  It is just that Paul Krugman doesn't know it.

FYI, here is what the leading introductory text says about the topic:



Other economists are skeptical about the relevance of liquidity traps and believe that a central bank continues to have tools to expand the economy, even after its interest rate target hits its lower bound of zero. One possibility is that the central bank could raise inflation expectations by committing itself to future monetary expansion. Even if nominal interest rates cannot fall any further, higher expected inflation can lower real interest rates by making them negative, which would stimulate investment spending. 

A second possibility is that the central bank could conduct expansionary open-market operations with a larger variety of financial instruments than it normally uses. For example, it could buy mortgages and corporate debt and thereby lower the interest rates on these kinds of loans. The Federal Reserve actively pursued this last option during the downturn of 2008 and 2009.

Some economists have suggested that the possibility of hitting the zero lower bound for interest rates justifies setting the target rate of inflation well above zero. Under zero inflation, the real interest rate, like the nominal interest, can never fall below zero. But if the normal rate of inflation is, say, 4 percent, then the central bank can easily push the real interest rate to negative 4 percent by lowering the nominal interest rate toward zero. Thus, moderate inflation gives monetary policymakers more room to stimulate the economy when needed, reducing the risk of hitting up against the zero lower bound and having the economy fall into a liquidity trap.

Here.

Wisdom from David Romer.

They write:

In the end, all the corrections advocated by the critics shift the average GDP growth for very-high-debt nations to 2.2 percent, from a negative 0.1 percent in Reinhart and Rogoff’s original work. The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.

He and Michelle seem inattentive to their own finances:

Several people have asked me to comment on the coding error found in one of the Reinhart-Rogoff papers. I have avoided the topic, since I don't think I have a lot to add to the discussion.  But because so many people have asked, here are a few observations:

1. Everybody makes mistakes. I once made an analytic error in one of my published papers and, after it was pointed out to me, subsequently wrote a correction (published version).  Finding and correcting errors is a part of the research process.  Sure, errors are embarrassing, but there is nothing dishonorable about making them.

2.  Policy should not be based on the results of a single study.  And my experience is that it never is.

3. I believe that high levels of debt and deficits are a negative for the economy in the long run.  My views on this issue have not changed substantially since I wrote about it with Larry Ball almost twenty years ago.

4. I never thought there was a magic threshold for the debt-to-GDP ratio above which all hell breaks loose.  The world is more continuous than that.

5. The coding error in Reinhart and Rogoff has gotten a lot more media attention than it deserves.  Some people on the opposite side of the policy debate have taken advantage of this opportunity to pound the drum for their views.  But just because someone in Team A makes an inadvertent excel error does not mean that everything Team B believes is true.  To suggest otherwise would be a truly egregious mistake.

From Megan Amram, Tommy Amaker, and Larry Summers. More to come at this link in the coming days.

A student I know (specifically, my older son) is trying to collect some survey data.  Click here if you are willing to participate.  The survey will take about 15 minutes.

Update: No more data is needed.  Thanks to the more than 1000 of you who participated.

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A performance not to be missed.

The IMF is holding a conference "Rethinking Macro" on April 16-17.  You can watch a live webcast.  Click here for information.

My Harvard colleague Raj Chetty has won the John Bates Clark Medal.