Kocherlakota posting his thoughts on a blog
Minneapolis Fed President Narayana Kocherlakota now has a bare-bones google blog. He started posting this week and in one of his first posts, he talks about the recent speech from Fed Vice President Stanley Fischer.
"My main comment on the speech: the zero lower bound could well be a material consideration for US monetary policy for years to come. That conclusion makes the following question paramount. What lessons can the FOMC learn from its most recent stay at the zero lower bound about policy choices and communications so that it can engender better US economic performance during future zero lower bound episodes? I've given my own answer to this question here - but the question matters far more than my answer."
I'd say the #1 lesson hasn't been learned yet. We need to see how the how cycle plays out in 4-5 years. By that point all the excesses in assets will be clear and we'll see how badly macro-prudential policies failed to fill in the gaps.
Ultimately, the lesson will be that it's the government's job to stimulate the economy, not central banks. Rather than pushing the envelop on experimental policy to boost GDP or inflation by 0.2 percentage points, they should stand firm and put the onus on government. Because that costs of those 0.2 percentage points will prove to be high.
