Question

Would you agree with John Taylor or with Ben Bernanke in the Taylor Bernanke controversy, explain why?

Answer 1

Taylor Bernake Controversy-

Ben Bernake criticized the use of rules-based monetary policy in which the central bank endeavours to set the instrument policy in a predictable rule-like manner. John Taylor has been highly critical of Fed and overall government policy for creating this massive recession. He has said in numerous papers that Fed kept policy rates much lower in 2003-06 than what his Taylor rule predicted. Bernake gave a speech saying Taylor rule doesnot work in real-time policy. Taylor responded to this saying Fed's forecast of inflation were too low. Taking the debate further, Bernake wrote an Op-ed defending Fed's move to pass another round of quant easing [QE2].

The private sector version of Ben Bernake crushed the Taylor rule and its debator during Washington Debate. Economist John Taylor was overmatched as his words were turned against him. The stanford University professor's formula for setting interest ratesbased on inflation and GDP has found in favour among Republicians fedup with Bernake's easy-money pollicy.

Opinion-

Its not just a liquidity trap but a policy trap as well.Idont understand this debates going up because of QE. Asset price inflation yes, but good's inflation is far away. Actually a higher goods inflation would be welcome given the slack in the economy. That is what the whole debate is about. Overall, Bernake is in difficult position . If he didnt have passed QE2 the the markets would have tanked a bit and people would have citicised him for not doing as per expectations. But still he had different sets of people that criticised him for doing too much and letting markets takeover.

Technical economic debates are tough to settle in public. It was pretty clear, though, that bernake had better of the argument. History seems to be in his corner so far.

I really admire Bernake on so much public criticism.