Lagging Data Forms Scary Monetary Policy

What’s the Latest Development?

Paul Krugman writes that last year it was the OECD; now it’s the Bank for International Settlements: “Once again, Very Serious men at an international organization seem determined to find reasons to tighten monetary policy in the face of a continuing deep slump.” Krugman is concerned that reports like that of the BIS are written and approved by committees, and that implies use of lagging data. “And sure enough, both interest spreads and commodity price inflation are telling quite different stories these days.”

What’s the Big Idea?

Krugman says there’s something going on here: “And I don’t think it’s really about economic analysis. Like others, the BIS is clearly engaged in monetary Calvinball, making up rules and concepts on the fly so as to justify monetary tightening whatever the circumstances. There seems to be a deep urge to inflict pain, to purge the rottenness or something. It’s scary. And the world will suffer for it.”