There IS An Interest Rate That Will Produce Recovery

Paul Krugman

Photo: Dave Shankbone via Flickr

I agree with David Beckworth that Richard Koo is wrong to insist that monetary policy can’t do anything in a balance sheet recession. But I think Beckworth introduces unnecessary complications; also, Koo isn’t entirely wrong.

Koo’s argument is that interest rates and monetary policy don’t matter because everyone is debt-constrained. That can’t be right; if there are debtors, there must also be creditors, and the creditors must be influenced at the margin by interest rates, expected inflation, and all that.Read the rest of this article at The New York Times.

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