Lunchtime Must-Read: Simon Wren-Lewis: Synthesis!? David Beckworth’s Insurance Policy

Simon Wren-Lewis: Synthesis!? David Beckworth’s Insurance Policy: “I really like David Beckworth’s insurance proposal…

…against ‘incompetent’ monetary policy. Here it is…. 1) Target the level of nominal GDP (NGDP). 2) ‘The Fed and Treasury sign an agreement that should a liquidity trap emerge… they would then quickly work together to implement a helicopter drop. The Fed would provide the funding and the Treasury Department would provide the logistical support to deliver the funds to households. Once NGDP returned to its targeted path the helicopter drop would end and the Fed would implement policy using normal open market operations. If the public understood this plan, it would further stabilize NGDP expectations and make it unlikely a helicopter drop would ever be needed.’… Jonathan Portes and I proposed something very like it…. Now this does not mean that Market Monetarists and New Keynesians suddenly agree about everything…. For David this is an insurance against incompetence by the central bank, whereas Keynesians are as likely to view hitting the ZLB as unavoidable if the shock is big enough. However this difference is not critical…