Scott Sumner

Comment on Brad Delong: Can We Generate Controlled Reflation in a Liquidity Trap?

Brad Delong overlooks several highly effective ways of exiting liquidity traps without overshooting toward excess inflation, according to Scott Sumner of Bentley University.

The role of the international gold standard in commodity price deflation: Evidence from the 1929 stock market crash

Abstract Recent studies have suggested that excessive increases in the monetary demand for gold may have contributed to the worldwide deflation and depression of the early 1930s. These increases have been attributed to currency hoarding as well as a lack of coordination among the major central banks. This paper examines whether news relating to these factors could have contributed to declining stock prices in the United States during the early stages of the Great Depression. There is some evidence that stock market participants expected monetary policy coordination, perhaps through the Bank of International Settlements, and that the market reacted adversely to political events that made cooperation more difficult.

Letter: Comment on Dolan and Recent Fed Policy

Edwin Dolan recently argued that the Fed might be running out of options to prevent deflation, but that their recent policy of paying interest on reserves offers hope for the future. Scott Sumner contests both assertions.

Does monetary policy become more desirable as it becomes less effective

Abstract The IS-LM model is often used to evaluate the relative effectiveness of monetary and fiscal policy. The standard textbook treatment of this issue, however, fails to note that an expansionary monetary policy actually becomes more desirable as it becomes less effective.

Comment on Leamer: Do Nominal Shocks Still Matter?

Abstract Ed Leamers recent column in this journal is illustrative of a puzzling trend in macroeconomics — the seeming denial of the long-held Keynesian and monetarist view that nominal shocks have real effects.

Money demand and nominal debt: An equilibrium model of the liquidity effect*

Recently, strong empirical evidence has been found to support the existence of a liquidity effect. Existing models of this effect, however, are not completely satisfactory. We attempt to overcome the shortcomings in previous theories by modeling money demand as a function of both expenditures on current output and transactions linked to nominal debt. Combined with several money supply processes, we show that such a money demand specification can plausibly explain a persistent liquidity effect. Unlike most other models of the liquidity effect, ours assumes prices are flexible and monetary policy has no impact on the real interest rate or output.