In comments he writes: "Fiscal policy: given standard arguments for Barrovian tax-smoothing, plus diminishing marginal benefits to government expenditure, I would be wary of distorting micro-optimal fiscal policy to make it do a job that monetary policy should be able to handle."
We had three guard dogs, named IT, PLT, and NGDPLT, that were all saying about the same thing from 1992 to 2008. The Bank of Canada listened to the first of those three dogs, and things seemed to go pretty well. So we figured IT was a good guard dog. In 2009 things changed. The Bank of Canada kept on listening to the IT dog, and did what was needed to make sure the IT dog stayed fairly quiet. The PLT dog stayed fairly quiet too. But the NGDP dog started barking loudly, telling us that monetary policy was too tight. And when I looked out the window, I saw exactly those symptoms that I normally associate with a random tightening of monetary policy: people having greater difficulty selling things for money; greater ease buying things for money; and a fall in the quantities of things sold for money. I saw exactly the same sort of recession I would expect to see if monetary policy suddenly at random became too tight. The NGDP dog was right to start barking loudly; the IT and PLT dogs failed to warn us of the recessionary burglar.
So I say: get rid of the IT dog and start listening to the NGDPLT dog instead.
[Update: and raising the inflation target is like giving the IT dog a hearing aid in the hope it will do better; and switching to a temporary NGDPLT but only during a recession is like having the NGDPLT dog temporarily replace the IT dog when you already know there's a burglar in the house.]
I would share objections others have on fiscal policy. Multipliers. Implications for inequality and fairness. During downturns the government can make needed infratstructure repairs on the cheap. Also politics. The Fed has become a lightening rod - even with its lackluster performance - because of Congress and austerity.
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