Everything i did wrong. But we think the question that the backward looking question our thinking about is how did that policy work . And could be considered conventional policy but one of the questions is given everything that we know that is the right one. Nobody anticipated we would have so many years or no did we think the long one longrun equilibrium the members said they expect to be at 3 that means theres not a lot of room below zero. So when we first conceived of this event may felt this was a discussion that was important because if you Start Talking about this you froze the market so you dont talk about it in public. So we were wrong that fomc members are afraid to talk about it and the number regional on Regional Fed Bank president s including janet yellen herself but it cannot be left to the policymakers are those who make Monetary Policy because it is too important of a decision to have a broader array of people to explain the issues are with the choices are in the pros and cons for that broader audience also we have a very crowded schedule and to discuss the issues so i am making a public plea to our speaker we can stick to our time schedule everybody can get a fair shot. We will start with Larry Summers former treasury secretary and then my colleague wilshire from appear Larry Summers. My job at a conference i am not in government should surely be provocative and be sound but my proposition is the first proposition the current framework likely to involve unnecessary costs of lost output with 100 billion per year. And a proper better framework that ultimately aspired to with nominal Interest Rate and to develop these in several stages. Within that current policy framework to have historical standards very low rates for a very large fraction of the time. Even in good economic times. Even to share the feds view in the neighborhood of 1 falling short of that 2 inflation target. With a good rule of investment dash to be revised in one direction. So it is my judgment for further reduction are more likely than further increases. It was due to the long run libor with 2. 3 . Less than 2. 8 but the market is projected that expected value as a reason for that discrepancy. But reasonable judgments if we continue to operate in our current framework in good times and the two or 3 range and it seems to me that the projection made with stanzel air to think that the fed and the market so with the second proposition what is the likelihood . My reading suggests that recoveries come unlike people do not die of old age and that probability of recession has significantly advanced into a recovery essentially independent of the length of recovery with that probability to be something in the neighborhood of 15 or 20 but that is a historical reading looking back through u. S. Cycle history. Going forward you could make a case it is the understatement that formal growth is 2 rather than half a percent emphasize a higher degree of geopolitical risk and emphasize a more levered economy with higher ratios to be more at risk. A case for more optimism and overestimate what emphasize lower inflation and less risk of inflation getting out of control to emphasize smaller inventory cycles i am not compelled that one of those is far more important but 15 annually is a reasonable estimate from the downturn downturn. So with Monetary Policy to do what it usually does. The average rates are reduced nominally by five Percentage Points the low numbers are at the beginning of the. With the credit rationing effects that were important how the economy function so that strikes me on the low side you look at real rates to conclude that 5 reduction of rate is necessary. You can see where five is substantially more. So the likelihood i will argue policy will not have sufficient room to cut rates as much as it would like to within the current framework. If one believes those rates will decline further than this effect is of course magnified. These conclusions are not very far from those that have been reached in a much more elaborate way with a 30 or 40 of the time if you assume once every seven years there is a recession then the rate will be constrained and be at about 30 given the current framework. So if within this framework expected output is large so to estimate the output lost 1 of gdp average at current magnitude over the next decade 200 billion per year. I think it is plausible that their estimate are too high and i have much more of a back of the envelope approach. To get into one of these episodes but to be constrained after the crisis to lose 1 of gdp. 1 of gdp to take that number once a decade that works out to 1 trillion over the next decade with the calculation obviously could be wrong if they were more frequent and you could imagine reasons why to have an overstatement but it seems hard to argue it is way off it is the cost to adjust Monetary Policy. How could this be way off . I may not have addressed the question of whether i am way off on the frequency or way off for what is necessary main challenge to the calculation alternative forms of stimulus can be provided so that is not the important restraint because monetary stimulus can be provided and that was her speech in 2016. I am far from convinced so starting at two and a half amply imagine the economy goes into recession then you imagine the fed cuts rates at the fed funds rate it will find its way down to the 1. 5 or in that range so that is from any further reduction. And that applies with respect to any monetary device so it is far from clear in retrospect it is as effective as it is often proposed and the evidence now is much less clear than it once appeared especially in light of those facts that the quantity of debt has increased rather than decreased and given the further observation with that induced short supply of treasury debt. With that former guidance. So while inflation was well short in the fed is not willing to predict inflation above 2 at any moment the tenth year of recovery with the Unemployment Rate of 4 . And that is undercutting whatever credibility that the Federal Reserve would be willing to live with substantial 2 there is the possibility with that growing levels of debt to gdp ratio with the aftermath of the recovery act. With that serenity of that policy. So the next time the economy moves into recession. So in the current framework in that context we dont have a base for assuming to be as rapidly as possible to lift us out of the next recession. So that criterion to choose that monetary framework so that should be a framework that contemplates with room to respond to a recession. So theres a range of 5 in normal times and how they permit above target inflation. With the price level rather than the rate of inflation. With to rely on nominal gdp. It seems a question of second order of importance. So the best guesses we will have room rather then we wont to respond to the next recession. So that the appropriate framework allows for the 5 in normal times if i could just conclude by observing that if i am wrong and assume that i am right to perhaps be slightly more marginal inflation. So with the trend toward a decline of rate to put ourselves at risk to exacerbate this succession. With the political economy. And for those to be marginally higher inflation so all consideration to emphasize centrally the need to provide that response to the next succession. Thank you very much. So if you have to decide today what the framework should be with the difficulties to have a horse in this race which would you choose . And with those tactical choices to choose one is a nominal gdp target of five or 6 because it would attenuate which were problematic to build in the property which is desirable to slow the underlying growth rate with the lower trawl rate. But the nominal gdp target but the smaller more practical step. To with that objective of inflation. Based on the confidence of that recession and then you could preserve that to and one 2 inflation target i dont think it is possible to reconcile the forecast of the inflation and then to be symmetric. I should have noted you are welcome to stand if you would like but across the hall way we do have a big screen where you can sit down if you would like. We will take a couple of questions and then let larry respond. B9 so to be implemented. Do you expect any physical response to the next recession . I know the horse has left the bar this particular year but with that capacity right now. And not put all of that on the monetary side . Please tell us who you are. I am patrick. With that conflation three or 4 range is consistent with the target nominal rates. It doesnt show any ability at that point. You would all concerned what kinds of things. Am i at all concerned . I did not hear your reading that was in the three or 4 range and to remain in control but furthermore in the form of intermittent recession to bring inflation down. I can see this would become a problem but as more and more time passes i see the 70s first as an experiment less as a proto typical to characterize what will take place i dont have that as a concern at the level of 1 trillion per decade at least from this brittleness problem but countercyclical in the political system to attenuate the arguments but it is pretty complicated business even leaving aside the infirmities of the political system. I just turns out i helped to design the economic recovery act so to turn spending on and off on the spending side. If you insist now they require 500,000 in capital. With apple and google as the Central Business problem what to do with all of their cash. And how to disburse all their cash. And it seems it is in environment to have structurally low Interest Rates. In the basic problem how do you extrapolate 321 . Another is that you extrapolate at one or two and then another answer is three and it is hard to know the answer is but i look at the downward trend of almost any proxy and i am at least as worried the rate will fall as i am of the belief that it is going to rise you have to take the fact of the indexed bond market and its telling you neither in the United States nor europe or japan is the expectation that that 2 inflation target will be obtained over decade that there is substantial doubt on dash the that stimulus. So if anything the assumption of the 1 rate is way too high as a certainty equivalent estimate of the real rate and how you should calculate that recognizing if it is too high that is a serious problem and if you are too low it is much less serious. Now the policy director came to us from the Federal Reserve and learning what the hell they do at the Federal Reserve with Monetary Policy anyway. [laughter] [laughter] so to have a brief introduction we are making the case why we talk about the alternative so we will get into the nittygritty what would you do and why . We have assigned people a task we have an amazing panel that doesnt need an introduction but i will tell you what is coming so first found peterson talk about the pros and cons of raising the inflation target and then talk about nominal gdp targeting. And then we will talk about the advantages and disadvantages of the price level target and then why we might want to stick with the current framework. Then ben vernacular will respond to all of them. And then when they are finished we will have a conversation. So i have been given the task to talk to the target rate so the 2 target as a precise estimate comes out of nowhere. There is a very nice survey looking at 161 papers on the inflation rate of those these are the ones that typically go the friedman route. And ignore the rest. Nine say between two and six. That gives a sense of what you get so looking at those studies none of them comes close to capturing the benefits of inflation. It is very hard to formalize them and most of them dont do that. One is with the welfare cost of inflation. 2 is a political number so the second point is whatever rate you thought was optimal 2006 you have to revise that up. For two reasons in the first is a mutual rate has decreased but there is that possibility that is the branch of the four and we know there can be a large and a deep recession so for both reason 2 is exactly the right number but it cannot be the right number today it has to be higher. So what do you do next . From the conceptual point of view it is a negative nominal rate so we are moving to that moment that maybe we can cast on keep cash but there it will be the solution where we are in ten years i suspect that is the way to do it. But not yet. So sometimes we need inflation so to generate when we need it but if you just have it when you need it it is much better if you can so they convince people when inflation is strong then there will be no inflation later. It can be that variation with that compilation it doesnt when its needed on one side but not the other. So i feel rather negative and pessimistic of moving expectations in that way. So if you could that would be a solution. So what is next i have no doubt we can get there we will just get to whatever number whatever the cost of 4 i really dont see that cost a 4 to to be that much higher than 2 . It just has to do with the tax system. And to index many of those would get rid of that. So one distortion that some of them would get confused that we know from the welfare point of view in a way that makes people happier they think the nominal rate is a real rate but then they make mistakes to choose their portfolio. So this is an issue we have to think about. This is the fifth point now i will shoot myself in the foot but one of the great advantages inflation was on our mind we really had to think about it in some way. Most of us as individuals have not thought about inflation and that is exactly what greenspan wanted so why is this good . Because those expectations dont move. As long as you dont abuse it then you have the tradeoff and it is much easier. I dont know exactly what the limit is that people will be more aware which is expectation adjusting to make the job of the central bank not difficult. Five in favor and one not and i shall stop here. [laughter] seventeen. [applause] my job is to make the case for nominal gdp targeting. And also the drawbacks against. But broadly i have gone to make a proposal and make the case and as assigned with some drawbacks. Its credibility, an and they targeted therefore is less useful if its something that is already unable to achieve. You can predict that there will be unable to achieve and you dont get the credibility, so im going to be a little negative here on the inflation targeting. The main point is that full employment. So im a little surprised when i hear how do we think five years later about this. Next time im going to resolve and the first one was incredible the second will be less credible and that applies to raising the target and in my view people speaking both before me in afted after me i think it applies to the price level target. Very elegant. People have to believe it. Thats the good news. I will say if the question is an inflation target it means, it should be transparent in the longterm. But it isnt credibility on it. Point number two and this is the more important question nothing really longterm that the central bank wants to signal its intelligence at the horizon of one to two years as a formal target or guidance for threshold in the bank of england back when is the best economic variable ts are used to signal your intentions shortterm Interest Rates and so on. My claim and assignment is a proposition if the banks want to communicate their intentions at a one to two year horizon it would be more effective if they do praise to that commitment for communication or guidance in terms of nominal gdp rather than inflation. You cant hit it exactly to say the mandate is to do everything it can to get as close as possible as the governor fails then the issue is fired. I was like the fantasy we all had about new zealand in the 90s but anyway, that would be the most extreme. Whether it is inflation or nominal gdp or anything else is not credible. Im going to make a nonthreatening my old proposal. They release the Economic Projections i think in 60, committed by the governors and Bank President s i propose adding nominal gdp in that table. My first choice before the real growth unemployment it gets much less attention and here is the most recent one from december. First is projected change in real gdp in the second is inflation Interest Rates. I propose we add a row for the nominal gdp and even if the members additionally just have to rate of growth of nominal gdp construct that by adding together the forecast for the growth rate and inflation rate, i will go along with that but i prefer to be the first row and get a little attention that it would be signaling that they are starting to Pay Attention to it. Let me slide in metro. Now the main point was the case for the nominal gdp . A little bit of historical background in case people are in favor of it or not familiar with it what the case was when it was first proposed before getting to my main point. It was originally proposed at the time when the target to be had triumphed the bank of japan and england and then a number f economists pointed out that they are not robust. But lots of other people including some in this room did some analysis to make the point. The point was nominal gdp is robust with respectable velocity shots. The target was needlessly destabilizing the shifts in demand for money and automatically by definition it offsets that so that was the strongest case and lots of us were in favor of it. Now, fast forward nominal gdp targeting underwent a revival around 2011, 2012 and circumstances were quite different. Once you get a whole array of people coming out in favor of it, they got a certain amount of attention and around the time he was taking office as governor in the bank of england. There were academic articles, its big in the blogosphere. Its a partial list of people that have written on the case for nominal gdp targeting for several years. Now it is a core level or change and the case in favor of nominal gdp targeting is still more robust with respect you are more likely to be able to live with it than a cpi target. Now its robust and respect to the aggregate supply shop are at the point. These are particularly relevant in the country. It says you have to take the entire shock in terms of the lost output and you cant let it in terms of high inflation. The main point of the big argument of the nominal gdp targeting is an impact o