Benjamin Friedman: belief

Transcript context

…And no crowding out from the Fed paying interest on reserves? That of course is a form of fiscal policy. It lowers the velocity of some of the monetary aggregates, presumably discourages banks from making loans? Won’t that crowd out some private investment? I think the answer is the same, Tyler. The interest rate at which the Federal Reserve has been crediting reserve balances held by the commercial banks is super, super low. Now, the economics behind your question is correct. No bank is going to lend to Tyler Cowen to start a new business, or to Ben Friedman to buy a new house at a rate lower than it can get by leaving the reserves on deposit at the local Federal Reserve bank and drawing the credit. But those interest rates are just super, super low, so if you had had an idea for a business and had wanted to go in and get a loan, I don’t think the fact that the Federal Reserve was crediting reserve balances would have made any difference whatsoever. Now, as you know, we have a much more explicit form of price inflation targeting than when you wrote your earlier papers on credit as a leading indicator. There’s been a switch of regimes to some extent. Do you think that in the current world that credit as a good leading indicator still makes sense?…

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