James Bullard slays Magic Walrus

Bullard: It is a pleasure to be here today to discuss this important conference topic, “Rethinking Monetary Policy.”  The financial crisis of 2007‐2009 and its aftermath turned monetary economics and policymaking on its head and called into question many of the conventional views held before the crisis.   One of the most popular and enduring views in all of monetary economics since the 1970s, and indeed since the 1940s, has been that a nominal interest rate peg is poor monetary policy, and that attempts to pursue such a policy would lead to ruin.  Yet, post‐crisis U.S. monetary policy could be interpreted as exactly that—an interest rate peg—and an extreme one at that, since the policy rate has remained near zero for nearly seven years.  In this talk, I will summarize some recent academic work on the idea of a stable interest rate peg and what its implications may be for current monetary policy choices.  I will argue that a stable interest rate peg is a realistic theoretical possibility; that it has some mild empirical support based on a cursory look at the data; and that, should we find ourselves in a persistent state of low nominal interest rates and low inflation, some of our fundamental assumptions about how U.S. monetary policy works may have to be altered.

Janet Yellen heard the speech and now wants a map of the DC-New York maze:

WASHINGTON (Reuters) - The U.S. Federal Reserve must weigh the effects of post-crisis financial regulations and new channels through which policy affects markets as it prepares to raise interest rates, Fed Chair Janet Yellen said on Thursday.

Yellen, kicking off a research conference on policy transmission and implementation after the 2007-2009 financial crisis, said the U.S. central bank also must weigh the disadvantages of its policy actions in light of new tools meant to help the Fed raise rates.

Fed "policymakers should be mindful of new channels for monetary policy transmission that may have emerged from the intricate economic and financial linkages in our global economy that were revealed by the crisis," she said in prepared remarks.

What is going on?

Central bankers have figured out that the banking network solves the schoolgirl problem, and they want to adopt the Theory of Everything.   They need banker bot to navigate the maze.