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Seven faces of "the peril"

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  • James Bullard

Abstract

In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data considered seem to be quite consistent with the two steady-state possibilities. The author describes and critiques seven stories that are told in monetary policy circles regarding this analysis and emphasizes two main conclusions: (i) The Federal Open Market Committee's "extended period" language may be increasing the probability of a Japanese-style outcome for the United States and (ii), on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2010)
Issue (Month): Sep ()
Pages: 339-352

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Handle: RePEc:fip:fedlrv:y:2010:i:sep:p:339-352:n:v.92no.5

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Keywords: Monetary policy - United States ; Deflation (Finance) - Japan ; Japan;

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  1. Evans, George W. & Guse, Eran & Honkapohja, Seppo, 2008. "Liquidity traps, learning and stagnation," European Economic Review, Elsevier, vol. 52(8), pages 1438-1463, November.
  2. Daniel L. Thornton, 2007. "The lower and upper bounds of the Federal Open Market Committee's long-run inflation objective," Review, Federal Reserve Bank of St. Louis, issue May, pages 183-194.
  3. Eusepi, Stefano, 2007. "Learnability and monetary policy: A global perspective," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1115-1131, May.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On the perils of Taylor rules
    by David Andolfatto in MacroMania on 2012-12-28 20:20:00
  2. Connecting the Academic and Policy Worlds: Interview with James Bullard
    by David Andolfatto in MacroMania on 2013-11-25 21:40:00
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Cited by:
  1. William T. Gavin & Benjamin D. Keen & Alexander Richter & Nathaniel Throckmorton, 2013. "Global dynamics at the zero lower bound," Working Papers 2013-007, Federal Reserve Bank of St. Louis.
  2. Lee C. Spector & Courtenay C. Stone, 2010. "Unlikely Estimates of the Ex Ante Real Interest Rate: Another Dismal Performance from the Dismal Science1," Working Papers 201010, Ball State University, Department of Economics, revised Jan 2011.
  3. Cizkowicz, Piotr & Rzonca, Andrzej, 2011. "Interest rates close to zero, post-crisis restructuring and natural interest rate," MPRA Paper 36989, University Library of Munich, Germany.
  4. William T. Gavin & Benjamin D. Keen, 2012. "U.S. monetary policy: a view from macro theory," Working Papers 2012-019, Federal Reserve Bank of St. Louis.
  5. Daniel L. Thornton, 2010. "Which comes first: inflation or the FOMC's funds rate target?," Economic Synopses, Federal Reserve Bank of St. Louis.
  6. Airaudo, Marco & Zanna, Luis-Felipe, 2012. "Interest rate rules, endogenous cycles, and chaotic dynamics in open economies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1566-1584.
  7. Eric M. Leeper, 2010. "Monetary science, fiscal alchemy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 361-434.
  8. James Bullard, 2013. "EconomicDynamics Interviews James Bullard on policy and the academic world," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 14(2), November.
  9. Stephanie Schmitt-Grohé & Martín Uribe, 2010. "Liquidity Traps: An Interest-Rate-Based Exit Strategy," NBER Working Papers 16514, National Bureau of Economic Research, Inc.
  10. Bart Hobijn & Colin Gardiner, 2010. "The breadth of disinflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec6.

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