The WSJ provided unique insight into the politics of the Fed as it described how Chairman Bernanke was able to gather a consensus on QE3. This is a big policy move because there was not agreement on the value of another QE.
QE1 was a total of 1.725 trillion over 17 months. QE2 was $600 billion over seven months. QE3 will be $40 billion a month for an unlimited amount of time. Albeit smaller in the term-term, it will be significant if it lasts as long as the forward communications on zero interest rates.
The most interesting nugget of information that may have swayed the governors was the view that the unemployment is cyclical and not structural. This is based on the research of Edward Lazear presented at the Kansas City Jackson Hole conference. The Lazear work shows that the those sectors that showed the biggest decline in the recession also have showed the biggest gains during the recovery. The implication is that the unemployment that we see during this crisis is cyclical and will respond if there is a way to have monetary policy affect aggregate demand. This is a big if, but it seems as though that this argument drove the decision for more easing. Research does matter.
QE1 was a total of 1.725 trillion over 17 months. QE2 was $600 billion over seven months. QE3 will be $40 billion a month for an unlimited amount of time. Albeit smaller in the term-term, it will be significant if it lasts as long as the forward communications on zero interest rates.
The most interesting nugget of information that may have swayed the governors was the view that the unemployment is cyclical and not structural. This is based on the research of Edward Lazear presented at the Kansas City Jackson Hole conference. The Lazear work shows that the those sectors that showed the biggest decline in the recession also have showed the biggest gains during the recovery. The implication is that the unemployment that we see during this crisis is cyclical and will respond if there is a way to have monetary policy affect aggregate demand. This is a big if, but it seems as though that this argument drove the decision for more easing. Research does matter.
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