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I Really Really Do Not Understand the Mental Universe of Today's Federal Reserve ...

I suppose my big problem is I keep getting hung up on the following optimal control principle: If you know in which direction your next turn of the wheel is going to be, then either you are steering around an immediate obstacle, or you are headed in the wrong direction. And if you are headed in the wrong direction, you should already have turned your wheel so that you are headed in the right direction.

At the zero lower bound, this principle does not directly apply. You are trying to steer around an immediate obstacle. Thus you know in which direction your next turn of the wheel is going to be. But a corollary to this general principle does apply, and applies very clearly: Optimal-control tells you to stay at the zero lower bound until you are confident that the economy is strong enough. Then you quickly move to point the economy in the right direction--to an interest rate where you are not sure whether your next turn of the wheel will be left or right.

The's "lift off and pause"--turn the wheel a little bit right, and then wait for a while even though you know your next turn is going to be to the right--seems to me to make absolutely no sense at all. I cannot write down any optimal control exercise in which it does. I cannot even do so if I put my thumb on the scale via assuming an unmotivated substantial aversion to ever making 50 basis-point meeting moves in interest rates...

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