What we are witnessing is the limit of what monetary policy alone can do. Sometimes there is a tendency to assume that the Fed can “target” any inflation rate it wishes, or that it can target the overall price level – the so-called nominal GDP targeting. The evidence suggests that the Fed may not be so omnipotent.
Pointer from Mark Thoma. A couple of comments.
1. This seems like an argument against Scott Sumner’s view that monetary policy was too tight in 2008. That is, I take them as saying that there was nothing that the Fed could have done. Scott Sumner would insist that the Fed lacked the will, not the way.
2. Mian and Sufi offer a chart showing that core inflation was below the Fed’s 2 percent target almost the entire period starting in 2000. This seems like an argument against John Taylor’s view that monetary policy was too loose in 2004-2006.
3. I believe that in 2007 the Fed folks thought that inflation was rising, in part because they looked at oil prices, not just core inflation.
4. Mian and Sufi entitle their post “Monetary Policy and Secular Stagnation.” I still want to see an economist reconcile a belief in secular stagnation with a belief in Piketty’s claim that the return on capital is going to exceed the growth rate of the economy on a secular basis. For the record, I believe neither.