Fed. folly?


No pictures or charts here , just a website that brings you to a research report by a duo of professors at the university of Columbia, Martin Uribe and Stephanie Schmitt-Grohé . The paper is above my pay-scale because of the overdose of math that it contains, but if you abstract from that it is extremely interesting. It is , or will be one of the few peer-reviewed academic papers that argues that the Fed is barking up the wrong tree. The argument presented is essentially that under the presently accepted doctrines of the Taylor rule, the downward rigidity of wages, combined with close to zero there is a good argument to be made that the missing confidence level is perversely fed by keeping interest rates down. This is, of course, precisely the opposite of what the Keynesian Central Bank policy now purports to do. This fits very well with ideas presented by Prechter who, in his “socioeconomic” approach to markets preaches that mood precedes outcome. Granted it is a little bit like “bloodletting” in the middle ages, but provided the patient responds positively it may actually help.   Enjoy the paper as someday this may become the policy standard.