For decades, the economic community has tried to prove whether monetary policy works or not. Scientists have been confounded by the lack of a controlled laboratory experiment and therefore have resorted to econometric analysis, which itself is hindered by stability issues. For instance, the long-held belief that monetary policy operates with a ‘long and variable lag’ basically negates the statistical evidence up front, no matter what the outcome.
But wait! The US Federal Reserve has kept short rates on hold for the last 6 1/2 years, which as the following diagram shows, is the longest stretch of unchanged interest rates since 1954:
For a statistician, this is manna from heaven! The fact that a critical variable has been constant for such a long period of time should enable researchers to clearly discriminate between movement in prices, employment, gdp etc etc that are unrelated to monetary actions, simply because there have been no monetary actions!
For instance, during the period 2009 to 2015, the US has experienced a recession, a tepid recovery, a robust expansion and, more recently, a nascent slowdown. None of this can be attributable to Fed policy change. The evidence against active monetary policy is mounting every day that the Fed remains on hold…
We are on the verge of finding something really significant, and the longer the Fed does nothing, the more significant the results will be. I therefore have started the Twitter hashtag #FedDoNothing , in the interests of Science, to appeal to the Fed to continue to do what it has been doing since 2009, which is nothing.
Please, join in the #FedDoNothing debate on Twitter and make your voice heard in the interests of Science.