Macro and Other Market Musings: Christina Romer: We Need A Regime Change at the Fed: What we learned from the Temin and Wigmore paper is that one way out of a recession at the zero lower bound is by changing expectations. To do that, often what is needed is a very strong change in policy – something economists call a “regime shift”. The most effective way to shake an economy out of a terrible downturn when we’re at the zero lower bound is an aggressive change in policy that makes people wake up, say “this is a new day” and change their expectations. What the Fed has done since early 2009 is much more of an incremental change….
I think that what the Fed needs instead is a regime shift… adopt a new framework for monetary policy, like targeting a path for nominal GDP…. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive [short run] policy – perhaps more quantitative easing and deliberate actions to talk down the dollar. Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses [without endangering confidence in the economy's long-run nominal anchors]…. This is just the medicine the U.S. economy needs right now.