Daily commentary: On monetary policy in a balance sheet recession

There has been a lot of back and forth by academic economists on monetary policy. The reason is two-fold. First, during the so-called Great Moderation many economists increasingly looked to monetary over fiscal policy for countercyclical support. Second, even so, fiscal support is expected to wane, making some nervous about the durability of recovery.

I agree that the recovery's durability should be questioned and the ECRI chart on real personal income is a major reason why. Meanwhile, as one would expect when income growth is weak, during this cyclical upturn, growth has waned in the second half of both 2010 and 2011. Quantitative easing and permanent zero came to the economy's rescue each time by propping up asset prices and shifting sentiment to risk-on.

Those that want to keep th...


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