Economics, Monetary Policy, Pethokoukis, U.S. Economy

This is what happens when a central bank is overly focused on inflation

Image Credit: skpy (Flickr) CC

Image Credit: skpy (Flickr) CC

Why Ben Bernanke is the economic hero of 2013. MKM economist Michael Darda:

It now looks as if the U.S. economy enjoyed at least 4% average nominal GDP growth this year, if not a bit higher. The revised Q3 GDP data (now up 4.1% A.R. vs. the previous upward revision to 3.6% A.R.) shows that NGDP has averaged about 4% in 2013, despite the budget sequester and a raft of tax hikes that took effect in January.

The revised GDP data is also more consistent with payroll gains, which have averaged just over 190K this year, slightly above the average of both 2012 and 2011.

Now, compare this performance to that of the euro area which plunged into a two year double dip recession when the ECB decided to tighten money into the teeth of root canal fiscal policies. Frankly, it’s a sad state of affairs (from the perspective of understanding proper monetary counterfactuals) that this strikingly divergent path, driven by relative monetary policies, still is not more widely recognized.

 

MKM

MKM

MKM

MKM

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

3 thoughts on “This is what happens when a central bank is overly focused on inflation

  1. It is an astonishing reality: modern-day central bankers have a predilection to obsess about inflation—a peevish fixation. Yet when they get a single mandate to focus on inflation they crush economic growth as seen in Japan and Europe.
    Oddly enough, the generally pro-business right-wing approves of this monetary aspyxiation.

  2. The problem with this article and the general declaration that fighting inflation is bad is based in a wishful, undetermined causality.

    There are a lot more differences between the US and the Eurozone than just fiscal policy.

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