What’s at stake: As we approach Jackson Hole, monetary policymakers are considering how to redesign monetary policy strategies to better cope with a low r-star environment.
The new murky economics
Paul Krugman writes that we’re no longer in the simple, depressed-economy world anymore. Early in the crisis, liquidity-trap macroeconomics had become the story of the day. And the basic message of the models — that everything changes when you hit the zero lower bound — was being overwhelmingly confirmed by experience. It was all beautifully hard-edged: a crisp boundary at zero, a sharp change in the impact of monetary and fiscal policy when you hit that boundary.
Paul Krugman writes that things have now gotten a bit murky. We’re no longer in a liquidity-trap macroeconomic situation, but