James Bullard Speech & Interview: XXV Annual Conference of the Central Bank of Chile

An Academic Conference

Speech

“This is an academic talk that I’ve presented before in 2021 if you want to see more detail.”

“I thought I’d use my time to talk about this deck here about Classic Policy Benchmarks for Economies with Substantial Inequality. This is part of a broader research agenda, which I’m going to summarize briefly here with Riccardo DiCecio known under the rubric of optimal monetary policy for the masses.”

“All right, so I’ll stop here. This is my story about how a classic combination of policies could deliver the first best allocation of resources even when there’s a lot of in inequality and income, wealth and consumption. So I’m saying that optimal policy doesn’t change in the sense that the policymaker still has to provide the Wicksellian natural real rate of interest, which I think is the thing that would continue to hold no matter how you’re going to write down your monetary policy and the friction that monetary policy is trying to solve because it is about the real rate of interest. But you have to have the other parts of the macroeconomic policy handling other aspects of the economy, in particular, unemployment insurance. And in this example here, a perfectly executed education policy which would drive the consumption genie towards zero, but would leave income and wealth genies at positive levels. So I’ll stop there. Thank you.”

Interview

“I think on this question, and one of the things that conference like this is really doing is making macroeconomics conversant and by extension monetary policy conversant on the questions around inequality … Now you have a lot of micro data that you want to be able to attack and you want to be able to say with a straight face that, the policy I’m recommending is also a good policy even when I take into account the many dimensions of heterogeneity that we’d like to take into account.”

“So the notion is that the monetary policy can react quickly to incoming shocks and changes in economic circumstances. And I’ve become a big believer in that. I think that’s true. That is what you want to do and you’re spending gobs of time assessing the economy, assessing all the risks that are coming in, then you’re trying to make the right monetary policy adjustment, fiscal policy in many ways is probably much more powerful. But I don’t think you want to be changing the taxes every six weeks.”