Is Taylor a Hawk or Not?

Two Bloomberg articles published just a week apart call John Taylor, a contender for Fed Chair, first hawkish, then dovish. The first, by Garfield Clinton Reynolds, notes:

...The dollar rose and the 10-year U.S. Treasury note fell on Monday after Bloomberg News reported Taylor, a professor at Stanford University, impressed President Donald Trump in a recent White House interview. 

Driving those trades was speculation that the 70 year-old Taylor would push rates up to higher levels than a Fed helmed by its current chair, Janet Yellen. That’s because he is the architect of the Taylor Rule, a tool widely used among policy makers as a guide for setting rates since he developed it in the early 1990s.

But the second, by Rich Miller, claims that "Taylor’s Walk on Supply Side May Leave Him More Dove Than Yellen." Miller explains,

"While Taylor believes the [Trump] administration can substantially lift non-inflationary economic growth through deregulation and tax changes, Yellen is more cautious. That suggests that the Republican Taylor would be less prone than the Democrat Yellen to raise interest rates in response to a policy-driven economic pick-up."

What actually makes someone a hawk? Simply favoring rules-based policy is not enough. A central banker could use a variation of the Taylor rule that implies very little response to inflation, or that allows very high average inflation. Beliefs about the efficacy of supply-side policies also do not determine hawk or dove status. Let's look at the Taylor rule from Taylor's 1993 paper:

r = p + .5y + .5(p – 2) + 2,

where r is the federal funds rate, y is the percent deviation of real GDP from target, and p is inflation over the previous 4 quarters. Taylor notes (p. 202) that lagged inflation is used as a proxy for expected inflation, and y=100(Y-Y*)/Y* where Y is real GDP and Y* is trend GDP (a proxy for potential GDP).

The 0.5 coefficients on the y and (p-2) terms reflect how Taylor estimated that the Fed approximately behaved, but in general a Taylor rule could have different coefficients, reflecting the central bank's preferences. The bank could also have an inflation target p* not equal to 2, and replace (p-2) with (p-p*). Just being really committed to following a Taylor rule does not tell you what steady state inflation rate or how much volatility a central banker would allow. For example, a central bank could follow a rule with p*=5 and a relatively large coefficient on y and small coefficient on (p-5), allowing both high and volatile inflation.

What do "supply side" beliefs imply? Well, Miller thinks that Taylor believes the Trump tax and deregulatory policy changes will raise potential GDP, or Y*. For a given value of Y, a higher estimate of Y* implies a lower estimate of y, which implies lower r. So yes, in the very short run, we could see lower r from a central banker who "believes" in supply side economics than from one who doesn't, all else equal.

But what if Y* does not really rise as much as a supply-sider central banker thinks it will? Then the lower r will result in higher p (and Y), to which the central bank will react by raising r. So long as the central bank follows the Taylor principle (so the sum of the coefficients on p and (p-p*) in the rule are greater than 1), equilibrium long-run inflation is p*.

The parameters of the Taylor rule reflect the central bank's preferences. The right-hand-side variables, like Y*, are measured or forecasted. That reflects a central bank's competence at measuring and forecasting, which depends on a number of factors ranging from the strength of its staff economists to the priors of the Fed Chair to the volatility and unpredictability of other economic conditions and policies. 

Neither Taylor nor Yellen seems likely to change the inflation target to something other than 2 (and even if they wanted to, they could not unilaterally make that decision.) They do likely differ in their preferences for stabilizing inflation versus stabilizing output, and in that respect I'd guess Taylor is more hawkish. 

Yellen's efforts to look at alternative measures of labor market conditions in the past are also about Y*. In some versions of the Taylor rule, you see unemployment measures instead of output measures (where the idea is that they generally comove). Willingness to consider multiple measures of employment and/or output is really just an attempt to get a better measure on how far the real economy is from "potential." It doesn't make a person inherently more or less hawkish.

As an aside, this whole discussion presumes that monetary policy itself (or more generally, aggregate demand shifts) do not change Y*. Hysteresis theories reject that premise. 

Yellen's Storyline Strategy

Storyline, launched this week at the Washington Post, is "dedicated to the power of stories to help us understand complicated, critical things." Storyline will be a sister site to Wonkblog, and will mix storytelling and data journalism. The editor, Jim Tankersley, introduces the new site:

"We’re focused on public policy, but not on Washington process. We care about policy as experienced by people across America. About the problems in people’s lives that demand a shift from government policymakers and about the way policies from Washington are shifting how people live. 

We’ll tell those stories at Web speed and frequency. 

We’ll ground them in data — insights from empirical research and our own deep-dive analysis — to add big-picture context to tightly focused human drama."

I couldn't help but be reminded of Janet Yellen's first public speech as Fed chair on March 31. She took the approach Tankersley is aiming for. She began with the data:

"Since the unemployment rate peaked at 10 percent in October 2009, the economy has added more than 7-1/2 million jobs and the unemployment rate has fallen more than 3 percentage points to 6.7 percent. That progress has been gradual but remarkably steady--February was the 41st consecutive month of payroll growth, one of the longest stretches ever....But while there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health. That will not be news to many of you, or to the 348,000 people in and around Chicago who were counted as looking for work in January...The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics. At 6.7 percent, the national unemployment rate is still higher than it ever got during the 2001 recession... Research shows employers are less willing to hire the long-term unemployed and often prefer other job candidates with less or even no relevant experience."

Then she added three stories:

"That is what Dorine Poole learned, after she lost her job processing medical insurance claims, just as the recession was getting started. Like many others, she could not find any job, despite clerical skills and experience acquired over 15 years of steady employment. When employers started hiring again, two years of unemployment became a disqualification. Even those needing her skills and experience preferred less qualified workers without a long spell of unemployment. That career, that part of Dorine's life, had ended. 

For Dorine and others, we know that workers displaced by layoffs and plant closures who manage to find work suffer long-lasting and often permanent wage reductions. Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work. He is doing better now, but still working for a lower wage than he earned before the recession. 

Vicki Lira lost her full-time job of 20 years when the printing plant she worked in shut down in 2006. Then she lost a job processing mortgage applications when the housing market crashed. Vicki faced some very difficult years. At times she was homeless. Today she enjoys her part-time job serving food samples to customers at a grocery store but wishes she could get more hours."

The inclusion of these anecdotes was unusual enough for a monetary policy speech that Yellen felt obligated to explain herself, in what could be a perfect advertisement for Storyline.

"I have described the experiences of Dorine, Jermaine, and Vicki because they tell us important things that the unemployment rate alone cannot. First, they are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives. Second, their experiences show some of the uniquely challenging and lasting effects of the Great Recession. Recognizing and trying to understand these effects helps provide a clearer picture of the progress we have made in the recovery, as well as a view of just how far we still have to go."

Recognition of the power of story is not new to the Federal Reserve. I noted in a January 2013 post that the word "story" appears 82 times in 2007 FOMC transcripts. One member, Frederic Mishkin, said that "We need to tell a story, a good narrative, about [the forecasts]. To be understood, the forecasts need a story behind them. I strongly believe that we need to write up a good story and that a good narrative can help us obtain public support for our policy actions—which is, again, a critical factor."

But Yellen's emphasis on personal stories as a communication device does seem new. I think it is no coincidence that her husband, George Akerlof, is the author (with Rachel Kranton) of Identity Economics, which "introduces identity—a person’s sense of self—into economic analysis." Yellen's stories of Dorine, Jermaine, and Vicki are stories of identity, conveying the idea that a legitimate cost of a poor labor market is an identity cost. 

The Most Transparent Central Bank in the World?

At a hearing before the House Financial Services Committee on Wednesday, Federal Reserve Chair Janet Yellen called the Fed the "the most transparent central bank to my knowledge in the world.” I'll try to evaluate her claim in this post. For context, the hearing focused on legislation proposed by House Republicans called the Federal Reserve Accountability and Transparency Act, which would require the Fed to choose and disclose a rule for making policy decisions. Alan Blinder explains:

"A 'rule' in this context means a precise set of instructions—often a mathematical formula—that tells the Fed how to set monetary policy. Strictly speaking, with such a rule in place, you don't need a committee to make decisions—or even a human being. A handheld calculator will do."

Blinder, who has long advocated central bank transparency, calls FRAT an "unneccessary fix" for the Fed. Discretion by an independent Fed needs not impede or preclude transparency, and the imposition of rules-based policy would not guarantee improved accountability and transparency.

What about Yellen's description of the Fed as the most transparent central bank in the world? Is it reasonable?  Nergiz Dincer and Barry Eichengreen have constructed an index of transparency for more than 100 central banks. Updates to the index, released earlier this year, cover the years 1998 to 2010.

Dincer and Eichengreen rate transparency on a scale of 0 (lowest) to 15 (highest). The 15-point transparency scale is based on awarding up to 3 points in each of the following components:

1. Political transparency: statement of objectives and prioritization, quantification of primary objective, and explicit contracts between monetary authority and government
2. Economic transparency: publication of central bank data, models, and forecasts
3. Procedural transparency: use of an explicit policy rule or strategy, and transparency over the decision-making process and deliberations
4. Policy transparency: prompt announcement and explanations of decisions and intentions; 
5. Operational transparency: regular evaluation of the extent to which targets have been achieved, provision of information on disturbances that affect monetary policy transmission, and evaluation of policy outcomes

The most transparent central banks as of 2010 are the Swedish Riksbank (14.5), the Reserve Bank of New Zealand (14), the Central Bank of Hungary (13.5), the Czech National Bank (12), the Bank of England (12), and the Bank of Israel (11.5).

The Federal Reserve, with a transparency score of 11, is tied for 7th with the ECB, the Bank of Canada, and the Reserve Bank of Australia. In 1998, the Fed's score was 8.5, and has held steady at 11 since 2006. So it is certainly reasonable to say that the Fed is among the most transparent central banks in the world. And since we can interpret transparency subjectively, and any rating scale has some degree of arbitrariness, these ratings don't disprove Yellen's claim.

The ratings were made in 2010. The Fed earned 1 out of 3 points in the political transparency category, 2.5 of 3 in procedural transparency, 1.5 of 3 in operational transparency, and perfect scores in the other categories.  The Fed's score should improve at the next update, since the January 2012 announcement of a quantitative 2% inflation goal may restore some partial credit in the political transparency category. A perfect 15 is not necessarily desirable. For example, one point in the political transparency category can only be awarded if the bank has either a single explicit objective or explicitly ranks its objectives in order or priority. Most banks that earn that point explicitly target inflation. To earn that point, the Fed would have to formally declare its price stability mandate a higher priority than its maximum employment mandate (or vice versa, which seems highly unlikely), while the Congressional mandate in the Federal Reserve Act does not prioritize one over the other.

Female Econ Majors: It's Not About Grade Grubbing

Claudia Goldin's analysis of male and female undergraduate economics majors is getting a lot of press. Goldin writes:

"Women who thought they would major in economics often become discouraged when they don’t get sufficiently high grades in introductory courses. Men are far less likely to be discouraged by similar grades. In other words, the gradient of major choice with respect to grades in the “gateway” courses is steeper for women than for men."

Amanda Hess at Slate summarizes the article, "Women May Be Underrepresented in STEM Because They're Too Concerned With Grades." Similarly, Catherine Rampell writes that "Women should embrace the B’s in college to make more later." These articles, I think, miss a bit of nuance. 

I don't think the real issue is that young women are just more "grade-grubby" than young men-- which is actually a pretty harmful stereotype. Grades serve as a signal, both to others and to the student. As Goldin notes, male students disproportionately choose to study economics before entering college. Economics professors are also disproportionately males. Economics grad students, who will be the undergrads' teaching assistants, are disproportionately males. A female undergrad may wonder if she really "belongs" among economists. So if she gets a B in Econ 101, she may put more weight on that than a male student would. If she already had doubts about whether she belonged in the major, she's going to put more weight on the signal from her grade. 

I don't think Goldin meant to imply that college women are just "in it for the grades" more than college men. Their decisions on major are more sensitive to grades, but for reasons other than perfectionism. This is why Goldin emphasizes Janet Yellen's nomination to head the Federal Reserve as an important milestone that could draw more women into the field, by showing them that they belong. She writes, "Yellen’s ascension at the Fed will show more women that economics isn’t an exclusively male field."

President Obama's Big, Frothy Hint

President Obama, in an interview with the New York Times, said a few sentences about what he's looking for in the next Fed chair. A few newspapers, including the Washington Post, have already exclaimed that "President Barack Obama says his next Fed chairman should take ordinary people into account when setting monetary policy."

President Obama indeed mentions "the lives of ordinary Americans getting better." But taken in context, his remarks are surprisingly inflation-hawkish and relatively unconcerned with unemployment. He says:

And what I’m looking for is somebody who understands the Fed has a dual mandate, that that’s not just lip service; that it is very important to keep inflation in check, to keep our dollar sound, and to ensure stability in the markets. But the idea is not just to promote those things in the abstract. The idea is to promote those things in service of the lives of ordinary Americans getting better. And when unemployment is still too high, and long-term unemployment is still too high, and there’s still weak demand in a lot of industries, I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation, and if it starts eating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.

When he says "The idea is to promote those things in service of the lives of ordinary Americans getting better," those things refers to keeping inflation in check, keeping the dollar sound, and ensuring stability in the markets. He's emphasizing the price stability part of the dual mandate much more than the maximum employment part. When he then goes on to mention high unemployment (a much bigger impediment to the lives of ordinary Americans getting better, in my opinion), he is remarkably quick to mention keeping an eye on inflation in the very same sentence.

The President says he wants "somebody who understands the Fed has a dual mandate," but somebody who truly understood this would recognize that the Fed's efforts in this economic environment should be focused on restoring full employment.

And then there are the remarks about frothing markets and bubbles. Now, President Obama refused to answer the NYT reporter's question about who he was considering for chairman--in particular, he refused to say whether he was planning to appoint Larry Summers--but this is a pretty big hint. Fed officials are split over the appropriate role of the Fed in trying to identify and constrain asset bubbles. The so-called "Bernanke doctrine" holds that monetary policy should be used to deal with normal macroeconomic concerns, while regulatory policies should be used to try to alleviate financial imbalances. Ben Bernanke, of course, is a follower of the Bernanke doctrine, as are, among others, Governor Sarah Raskin and Vice Chairwoman Janet Yellen. Yellen, a top contender for the next Fed chair, has said, "I think most central bankers view monetary policy as a blunt tool for addressing financial stability concerns and many probably share my own strong preference to rely on micro- and macroprudential supervision and regulation as the main line of defense."

Governors Jeremy Stein and James Bullard are among the group who don't buy the Bernanke doctrine; they believe that monetary policy (i.e. higher interest rates) should be used to "fight financial excess a little more than we have in the last few years." Larry Summers, also considered a top contender, fits more into this group, expressing concerns that the Fed's monetary policy of recent years creates "an environment that’s going to increase the risk of – going to increase the risk of bubbles."

So I think President Obama's comment, "if the markets start frothing up, let’s make sure that we’re not creating new bubbles," reveals who has his ear, and maybe whom he has in mind: Summers.

But returning to "the lives of ordinary Americans getting better," here's Janet Yellen in 1995:

"I began by asking myself the question, what is it that the public cares about? The answer seems straightforward to me. It is not just high and variable inflation; that is not the only aspect of economic performance people care about. The public also cares about real outcomes. Households and businesses very much dislike fluctuations in output and employment, for good reasons. Quite naturally, they prefer higher average output and lower average unemployment. I consider these goals eminently sensible, not foolish nor irrational. 

Then I ask myself, what is it that the Fed can accomplish? I conclude that the actions of this Committee affect not just the level and variability of inflation but also at a minimum the variability of output and employment. I know that some people would argue against our trying to reduce the variability of output on the grounds that economic forecasting is so uncertain and that there are long and variable lags in monetary policy, so maybe all we would do is to destabilize the economy rather than stabilize it. But when I look at the record, I just do not agree. It seems to me the record shows that within limits, tuning works even if it is not "fine."... 

The moral I draw is simply that the Fed should pursue multiple goals. It follows almost automatically that when the American people have sensible multiple goals and the Federal Reserve affects multiple dimensions of economic performance, that the Federal Reserve Act should enshrine all of those goals and we should do our best to honor them... I understand that the mandate of the Federal Reserve Act to pursue multiple goals is pretty vague. There really is no guidance in the Act as to how to call the tough trade-offs. But I see the objectives as fundamentally sound, and I think this Fed, in pursuing those goals, has enhanced social welfare...I want at least to mention that if this Committee were to decide that it really wanted a quantitative monetary policy rule incorporating a numerical inflation target--for example, because it was thought to be important to have a nominal anchor for monetary policy--we should not go with the type of rule embodied in the Neal amendment, which is a pure inflation targeting scheme. Why? Because there clearly are better rules. We could talk about those at length but a simple approach, not necessarily the best, that dominates inflation targeting would be a hybrid rule that would adjust monetary policy--and this could be a mechanical rule if it were so desired--on the basis of two gaps, not one. These would be the gap between actual and target inflation and also the gap between actual and potential output...Uncertainty about sales impedes business planning and could harm capital formation just as much as uncertainty about inflation can create uncertainty about relative prices and harm business planning."

She got it then and she gets it now. I could say more about her remarkable credentials, but plenty of people have already jumped in to do so in the last week. I can only echo that she is the best choice to replace Chairman Ben Bernanke at the Fed.

***Fun fact: My high school, like most high schools, voted on "senior superlatives" (most likely to succeed, best athlete, etc.) Oddly, I was given "Most likely to be the next Alan Greenspan." I say oddly because I had no interest in economics at the time, and still didn't for another few years after that. Obviously, I did not become the next Alan Greenspan. Ben Bernanke beat me to it! But I was still tickled by Binyamin Appelbaum and Annie Lowrey's remark that "President Obama’s choice of a replacement for the Federal Reserve chairman, Ben S. Bernanke, is coming down to a battle between the California girls and the Rubin boys," and to have the great pleasure of being associated with the California girls!

Depressing Slow Recovery Graphs

Earlier this year, Fed Vice Chair Janet Yellen described the economic recovery as "painfully slow," and said that an "important tailwind in most economic recoveries is one that tends to be taken for granted--the faith most of us have, based on history and personal experience, that recessions are temporary and that the economy will soon get back to normal." This tailwind, she implied, was particularly weak. Here I've made two graphs that give an indication of the painfully slow recovery.

The Michigan Survey of Consumers asks respondents, "Compared with 5 years ago, do you think the chances that you (and your husband/wife) will have a comfortable retirement have gone up, gone down, or remained about the same?"

Before 2008, on average 45% of people would say that their chances of a comfortable retirement had stayed the same. About 28% would say their chances got worse, and 26% would say their chances got better. Figure 1, below, shows the percent of respondents who chose better or worse each month. By October 2008, only 11% of respondents thought their chances of a comfortable retirement were better than 5 years ago; 45% thought they were worse. 

As of October 2012, the numbers are barely improved: 15% of people think their chances of a comfortable retirement are better than they were in 2007, and 41% think they are worse.

Figure 2 shows the percent of respondents in the highest and lowest income terciles who think their chances of a comfortable retirement are worse than 5 years ago. For the top income tercile, hit harder by falling asset prices, this number peaked at 62% in February 2009, and averaged 41% over 2012. For the bottom income tercile, hit harder by the deteriorating labor market, this number peaked later, at 56% in May 2011,  and averaged 45% over 2012.

Figure 1: Constructed with data from Michigan Survey of Consumers

Figure 2: Constructed with data from Michigan Survey of Consumers

When Economists Have an Auction

I just got back from the Berkeley Economics annual skit party. The skit party is combined with an auction to raise money for the Graduate Economics Association. Professor Yuriy Gorodnichenko contributed a very interesting auction item: a promise to pay $500 if Christina Romer or Janet Yellen becomes Fed chair at any time in the future.

The bidding started at $50, and quickly jumped up to $200. I was bidding against Gabriel Chodorow-Reich, a fellow macro student. I chickened out and went silent after he bid $220, so he won. Immediately after, I was kicking myself for not sticking in a little longer. I think Gabe got a heck of a deal-- plus I would just love to be able to say that I had bought this unique asset.

Professor Gorodnichenko (who also swept the awards ceremony tonight, winning the Best Professor and Best Adviser awards) donated another auction item-- a check with the amount drawn from a beta distribution with parameters alpha=3 and beta=2, multiplied by $100. The beta distribution is only nonzero on the unit interval, so the check will have value between $0 and $100. The mean of the beta distribution is alpha/(alpha+beta), so the expected value should be $100 (3/5)=$60. The item went for $50 -- so everyone in the audience must have been risk averse, loss averse, financially illiterate, or liquidity constrained (or some combination, like me.) A bottle of wine from Professor David Card's vineyard was the highest-priced item, going for $240.

The most creative item was donated by grad student Kaushik Krishnan. He collected and printed all of Brad DeLong's "Liveblogging World War II" blog posts and put them into a binder, which he promises to get signed by DeLong next time he's in Berkeley. If I remember right, that went for around $40.

Bernanke, Bankers, Bubbles

In 1999, at the height of the dot-com bubble, Ben Bernanke and Mark Gertler argued emphatically against central banks responding to movements in asset prices.  Monetary policy could react to the macroeconomic consequences of asset price movements, but not to asset prices themselves. In other words, monetary policymakers should not raise interest rates solely to address a potential bubble.

After the dot-com bubble burst, they held firm in their opinion in a 2001 paper titled "Should Central Banks Respond to Movements in Asset Prices?" Their answer to the title question is a firm no. They build and simulate a model of the economy that includes both technology shocks and "stock price bubble" shocks and find that "an aggressive inflation-targeting rule stabilizes both output and inflation when asset prices are volatile, whether the volatility is due to bubbles or to technological shocks; and that, given an aggressive response to inflation, there is no significant additional benefit to responding to asset prices."

The housing bubble prompted a number of challenges to the Bernanke-Gertler dictum. A fairly common view is that expansionary monetary policy contributed to the housing bubble. Dean Baker and John Taylor have both argued that the housing bubble was caused by the Fed keeping interest rates too low for too long. (In 2001 the Federal Funds Target rate was lowered from 6.5 to 1.75 percent. In 2003 it was lowered to 1 percent and held there for a year.) Bernanke counters that increased use of variable-rate and interest-only mortgages and the decline of underwriting standards were more to blame than low interest rates.

Now, interest rates are again very low, and have been for quite some time. Challenges to the Bernanke-Gertler view are more vociferous than ever, and come not only from John Taylor but also from Chairman Bernanke's committee members and his contemporaries at other central banks. Fed Governor James Bullard, for example, says that "maybe you should think about using interest rates to fight financial excess a little more than we have in the last few years.” Kansas City Fed President Esther George and Fed Governor Jeremy Stein express similar views that the Fed should use its control of interest rates to do something about "overheating." However, Fed Vice Chairwoman Janet Yellen shares Bernanke's view that the benefits of accomodative monetary policy at this point outweigh the risks of any potential financial overheating.

When Bernanke wrote his 1999 and 2001 papers with Gertler, he was a professor at Princeton University. Another Princeton professor, Lars Svensson, is the Deputy Governor of the Swedish Riksbank. At the Riksbank last month, Governor Stefan Ingves warned that low interest rates are driving up household debt. But Svensson is a strong proponent of his former colleague's views. At the February Rikbank meeting, he argued against the committee's concerns that low interest rates could be leading to financial instability. He cites a 2012 paper by Kenneth Kuttner called "Low Interest Rates and Housing Bubbles: Still no Smoking Gun," whose title summarizes its conclusion.  In particular, Kuttner estimates that a 25 basis point expansionary monetary policy shock raises house prices by about 0.3% to 0.9%, which is "too small to explain the previous decade's real estate boom in the U.S. and elsewhere... Credit conditions, broadly defined, may play a larger role in house price booms than interest rates per se. In market-oriented financial systems, like that of the U.S., a loosening of credit conditions plausibly resulted from financial innovation, such as securitization, and a relaxation of lending standards."

Svensson's long list of publications and speeches reveals a longstanding interest in monetary policy and financial stability, with views consistently in accord with Bernanke's. In a 2011 lecture called "Central-Banking Challenges for the Riksbank: Monetary Policy, Financial-Stability Policy, and Asset Management" Svensson notes:

"Monetary policy and financial-stability policy are distinct policies, with different objectives, different instruments, and different public authorities having responsibility for them... Monetary policy should be conducted taking the conduct of financial-stability policy into account, and vice-versa. But they should not be confused with one another. Confusion risks leading to a poorer outcome for both policies and makes it more difficult to hold the policymakers accountable."

One of the most interesting blog posts I have read on this topic is from Miles Kimball, who writes that people taking on more risk as a result of low interest rates is "a genuine cost to the Fed stimulating the economy with low interest rates. But— especially once we figure out the details—it has much bigger implications for financial regulation than for monetary policy...Regulation has serious costs, but so does tight monetary policy in the current environment." This seems to be the view of Bernanke, Yellen, and Svensson, but is still far from a settled issue among the world's monetary policymakers.

How I Wish this Book Existed

There already exist many books about the financial crisis and Great Recession, but not the one I am most dying to read. Imagine this: a book about the crisis and recession written each chapter written by a different  top female macro or financial economist. Here is my dream chapter line-up.

Chapter 1: Signs of Impending Crisis, Janet Yellen

Chapter 2: International Integration, Contagion, and Domestic Vulnerability, Graciela Kaminsky

Chapter 3: Bank Competition and Systemic Stability, Asli Demirguc-Kunt

Chapter 4: Minding Our Money: Financial Literacy and the Crisis, Olivia Mitchell

Chapter 5: Unconventional Monetary Policy in Exceptional Times, Lucrezia Reichlin

Chapter 6: Quantitative Easing and Portfolio Choice, Annette Vissing-Jorgensen

Chapter 7: Evaluating TARP, Loretta Mester

Chapter 8: Public and Private Spending, Valerie Ramey

Chapter 9: Inventories and the Delayed Recovery, Martha Olney

Chapter 10: Beyond Unemployment Rates: The Great Recession and Material Hardship, Janet Currie

Afterword: Policy and the Power of Ideas, Christina Romer

What do you think? Would other people be excited to read this too? What chapters and authors am I missing?