Evan Soltas
Jul 30, 2013

What Larry Summers Said in 1991

Larry Summers seems to have a blank slate when it comes to monetary policy. He hasn't written or said much that reveal his own views. But with an assist from Tyler Cowen, I've found that Summers actually did say quite a lot about monetary policy. Back in 1991.

He participated in a panel discussion for the Journal of Money, Credit and Banking -- a top academic publication for monetary economists -- on the long-run goals a central bank should have. Since it is gated, I will summarize it. Here are his top 3 quotes:

1. He's practically in favor of NGDP targeting. "What should be the long-term objectives of the monetary authority?...What the monetary authority surely can control in the long run is the growth rate of nominal income."

2. He doesn't like monetary rules, specifically John B. Taylor's or Milton Friedman's. "[I]nstitutions do the work of rules, and monetary rules should be avoided...Unless it can be demonstrated that the political institutional route to low inflation -- to commitment that preserves the discretion to deal with unexpected contingencies and multiple equilibria -- is undesirable or cannot work, I don't see any case at all for monetary rules."

3. He is dovish on inflation. [T]he optimal inflation rate is surely positive, perhaps as high as 2 or 3 percent...I would support having someone in charge of monetary policy who is more inflation averse than I." His arguments anticipate one Janet Yellen's in 1996: downward nominal rigidity of wages and the zero lower bound on the nominal interest rate.