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07/03/2013

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Ashok Rao

I think there are structural problems. I also think wages are sticky. So I absolutely believe that in the short-run "printing money and borrowing" can fix unemployment. Or some of it. In the long-run not so much, and I would love to see Krugman or myself say this anywhere.

You miss what credibly promising to be irresponsible means. It is like this. At the zero lower bound, not only must the market be convinced that the Fed will print money today to stimulate the economy, but also that as the economy recovers, in a future time period, the Fed can tolerate above-trend inflation. Currently we do not believe it can.

You should also note that Paul Krugman does not like relying on DSGEs much and totally understands the flaws with microfoundations. Funny how he would agree with you on that...

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