Bryan Caplan  

Dan's Great Question about Bernanke

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Dan asks a great question in the comments:
Does anyone know if Bernanke has given a defense of his change in perspective? Has anyone even challenged him on the apparent contradiction between his actions as Fed chairman and his academic work?
Anyone?


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COMMENTS (7 to date)
matt writes:

i think Ron Paul has questioned him pretty consistenly regarding his change of heart as he also did with Greenspan.

Daniel Kuehn writes:

Here's one example of an explanation from April:

"Relative to the Fed's short-term lending to financial institutions, the CPFF and the TALF are rather unconventional programs for a central bank to undertake. I see them as justified by the extraordinary circumstances in which we find ourselves and by the need for central bank lending practices to reflect the evolution of financial markets; after all, a few decades ago securitization markets barely existed. Notably, other central banks around the world have shown increasing interest in similar programs as they address the credit strains in their own countries. These programs also meet the criteria I stated at the beginning of my remarks regarding credit risk and credit allocation. Credit risk is very low in both programs; in particular, the TALF program requires that loans be overcollateralized and is further protected by capital provided by the Treasury. Both programs are directed at broad markets whose dysfunction impedes the flow of numerous types of credit to ultimate borrowers; consequently, I do not see these programs as engaging in credit allocation--the favoring of a particular sector or a narrow class of borrowers over others."

I think you guys are being disingenuous when you say that you act puzzled about the change in perspective. You know the answer, and he's given it in lot's of circumstances. You just either don't like it or don't agree with it, so you write it off as "short-term political influence". But don't even try to tell us you're puzzled by it.

I could blame your perspective and Don's perspective on "short term political influence" because of the political cogency of the Ron Paul crowd right now. That sort of perspective pays BIG political dividends. But I don't accuse you of that because I know that that's not how or why you came to your conclusions. You oughta receive Bernanke's position the same way - even if you choose not to agree with it.

Daniel Kuehn writes:

*that you are puzzled about

Dan's comment includes the following sentence from Bernanke's old Japan paper (the same paper extensively quoted by Scott Sumner, although Scott doesn't quote this sentence):

[blockquote]"To be clear, it is most emphatically not good practice for monetary policymakers to try to target asset prices directly." - Bernanke, citing another paper by himself.[/blockquote]

Is that the statement in apparent conflict with Bernanke's actions as Fed chair? Or is it something else?

Daniel Kuehn writes:

Lawrence - I was personally refering to what Bryan refered to as "truly revolting" in the original link - the direct lending. Perhaps he was thinking of something different.

Ryan Vann writes:

I have to second Mr. White's question. If the sentence proposed is the item of contention, then I don't know if Bernanke is necessarily being hypocritical. Assets have become very liquid in recent years, almost to the point of being money in of themself. As a result, asset prices may now indeed be a concern of the Fed.

pushmedia1 writes:

Bernanke's comments on Japan were about the Bank of Japan's policy stance. The BoJ basically gave up on being able to meet an inflation target. They basically had no role in setting the expected level of inflation in that country because their policy stance didn't allow them to have an impact on inflation expectations.

This is not the policy stance of the Fed today. Expectations are anchored, to use the parlance. (BTW, I'm not saying the Fed didn't make a mistake. Nor am I saying that current policy is optimal. I'm just saying that unlike in Japan, the Fed can manage expectations of inflation.)

So, Bernanke's comments about the BoJ's policy in the 90's is not relevant to Fed policy today. There's not contradiction; no change of heart.

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