This Was Extremely Bad Then. This Is Extremely Bad Now. Hoisted from the Archives

John Taylor is not just wrong, but wrong in a way that it is impossible to be if you are attempting to argue in good faith from any coherent set of economic principles and models: Miles Kimball: Contra John Taylor: "[Taylor] is just wrong...

...The Fed is promising to shift the demand curve for assets in the future and thereby get to a particular equilibrium interest rate. This is not at all like rent control. The right analogy is... getting rents to come down by reducing making it easier to get a building permit, or by subsidizing the building of new apartments.... There is a world of difference between a market intervention in which the government contributes to supply and demand and a price floor or ceiling. By buying assets, and promising to buy them in the future, the Fed is lowering an equilibrium interest rate. The details of the pattern of buying assets and promising to buy them in the future tends to keep the equilibrium interest rate at a certain level. The fact that the Fed acts by changing the equilibrium interest rate matters, because John’s claim that lowering the interest rate will reduce the quantity of investment would hold only if what the Fed is doing really did act like an interest rate ceiling that makes asset demand lower than asset supply...

#shouldread

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