An interesting moment in the history of economic thought

2008
Waxman:  "You found that your view of the world, your ideology, was not right, it was not working?"

Greenspan: "That's precisely the reason I was shocked because I'd been going for 40 years or so with considerable evidence that it was working exceptionally well."



Now
Brad Delong -

Inflation, production, and employment (but not the unemployment rate) have been disappointingly low relative to Federal Reserve expectations for each of the past nine years. These events should have led to substantial rethinking by the Federal Reserve of its model of the economy. And yet the model set forward by Yellen and Fischer (but not Evans and Brainard) appears to be very much the model they held to in the late 1990s, which was the model they believed in in the early 1980s...


Krugman -

There is a near-consensus at the FOMC that rates must eventually move up. But here’s my question: why, exactly? Specifically, which component of aggregate demand do we believe will continue to strengthen in a way that will require monetary tightening to avoid an overheating economy?

...I don’t see an obvious reason to believe that current rates are too low. Yes, they’re near zero — but that in itself doesn’t mean too low.

Like others, notably Larry Summers, I think the Fed is trying to return to a normality that is no longer normal.


St. Louis Fed -


The Federal Reserve Bank of St. Louis is changing its characterization of the U.S. macroeconomic and monetary policy outlook. An older narrative that the Bank has been using since the financial crisis ended has now likely outlived its usefulness, and so it is being replaced by a new narrative. The hallmark of the new narrative is to think of medium- and longer-term macroeconomic outcomes in terms of regimes. The concept of a single, long-run steady state to which the economy is converging is abandoned, and is replaced by a set of possible regimes that the economy may visit. Regimes are generally viewed as persistent, and optimal monetary policy is viewed as regime dependent. 

[And, note well:]  Switches between regimes are viewed as not forecastable...