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View Full Version : Eeyore, Tigger, and the Fed



David G
03-10-2012, 08:21 PM
From our friends at Freakonomics again:

http://www.freakonomics.com/2012/03/06/what-can-eeyore-and-tigger-teach-bernanke-about-monetary-policy/

David G
03-11-2012, 08:31 AM
OK... a snippet:


Economists studied (http://www.brookings.edu/%7E/media/Files/Programs/ES/BPEA/2003_1_bpea_papers/2003a_bpea_eggertsson.pdf) this issue in the early 2000s, and concluded that when you can’t push interest rates any lower, Tigger’s strategy is best. Markets want to know that the Fed is committed to helping the recovery and won’t risk it to fight the specter of inflation…
Small as it may sound, the distinction is important. Businesses are always suspicious that Bernanke may try to sound like Tigger, but revert to being Eeyore when the recovery starts. To succeed at the game of forward guidance, Bernanke needs to convince us he’s committed to low rates in the short-term even if the economy improves. It’s about fully embracing a loveable tiger, or risk being mistaken for a miserable donkey.

John Smith
03-11-2012, 08:35 AM
That's what tiggers do best.

David G
03-11-2012, 08:49 AM
I guess there's a reason I found the article interesting - beyond the cute little pop-culture reference.

Partly it's because of the source. The Freakonomics folks have always struck me as blithely non-partisan. They're interested in all things relating to real-world (as opposed to macro-theoretical) economics. What they're most interested in, though, is incentives.

So this is their take on how the exact same action can have very different results - depending upon the incentives/expectations created stylistically. One can go the gloomy, pessimistic route (Eeyore), or one can go the effervescent, cheerful route (Tigger). I find that analysis, and the study they cite, interesting. In this case, they argue, the latter will be more effective. I suspect they'd also argue that it's generally better as well (I certainly would), but they don't attempt that discussion here.

And, of course, there's the added fillip of these non-partisan and savvy folks at Freakonomics taking it as a given that inflation will likely be a minimal concern at least thru 2014. Another unbiased voice heard from on that topic!

elf
03-11-2012, 09:23 AM
Mr. Krugman is hardly of the Tigger style, but has been arguing for 3 years now that the Eeyores are simply wrong about inflation.