Scott Sumner argues
that a monetary base increase will have a stimulatory / inflationary effect if
it’s accounced as PERMANENT.
No doubt. But the problem there is that any announcement by a government
or central bank to the effect that a counter cyclical measure is permanent is a
contradiction in terms. It won’t be taken seriously.
A counter cyclical stimulatory measure is one which by definition may be
reversed if and when the private sector gets too confident. It’s a bit like the
recent announcement by the Bank of England that interest rates will stay low
for two years: no one believes it.
Of course the same problem applies to fiscal stimulus: i.e. the effect of
ANY stimulatory measure, monetary or fiscal, is always reduced by income
smoothing.
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