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Goldman economist Jan Hatzius performs an impressive feat of prognostication by guessing 6 things that will be in Ben Bernanke’s Jackson Hole speech, merely by looking at the title of the speech.The title of the speech is known to be Monetary Policy Since the Crisis, which Hatzius believes will be a “lessons learned” kind-of speech. As such, he expects Bernanke to reveal the following 6 lessons (his words).
- Financial crises and housing downturns have large negative effects on aggregate demand.
- Some well-worn rules of thumb of macroeconomics don’t apply when the economy is stuck at the zero bound.
- The zero lower bound on nominal interest rates is a more serious obstacle to making monetary policy sufficiently accommodative than many economists–including Ben Bernanke–had thought prior to 2007.
- Unconventional Fed balance sheet policies work mainly through the asset side (i.e. the so-called portfolio balance effects) rather than through the liability side (i.e. the amount of bank reserves in the system).
- Sustained periods of high unemployment can result in “hysteresis”
- Inflation expectations are even more “anchored” than economists thought before the crisis.
For Hatzius, the #1 way Bernanke could throw a huge curveball would be to talk about “unconventional unconventional” policy measures, such as nominal GDP targeting, or unlimited QE (a promise to keep buying bonds until a desired economic effect were achieved).
As for the actual question of what policy will happen at the September meeting, Hatzius doesn’t expect a definitive answer from Bernanke this Friday, especially since we’ll get the huge August jobs report before then.
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