I’ve never been convinced there is a better way to run monetary policy. But this presentation was the first time that a reasonably rational explanation of potential problems with it, was presented.

True, but according to the Kiwiblog post the economist was talking about recent economic growth, not productivity growth.

“Relevant to point three, haven’t read the paper yet though. ”

Looks interesting, when you read it tell me what it says 😉

“The argument could be summarized as short-term slow growth leads to long-run slow growth.”

I agree, the causal chain seems like rubblish – ultimately that is the assumption that needs to be made (old hysteresis).

“To convince me I’d like to here a much better argument for why monetary policy is producing a lower investment rate in equilibrium”

Exactly!

Relevant to point three, haven’t read the paper yet though. Link

The argument chain seems to be skipping back and forth between short and long-run models, I don’t find it particularly coherent. Aggregate demand is far more responsive to interest rates than aggregate supply (so prices are going to fall, not rise), and anyway a slower growth rate in aggregate supply is only inflationary if money supply growth is held constant.

The argument could be summarized as short-term slow growth leads to long-run slow growth. A possibility, but inflation and over-investment also harm growth, so there’s a trade-off here (empirically, I thought there was a Milton Friedman paper arguing slowdowns don’t alter the long-run GDP level). To convince me I’d like to here a much better argument for why monetary policy is producing a lower investment rate in equilibrium (not just cyclically). I believe we have high interest rates because we don’t save much, not the other way around.