University of Chicago economics professor Casey Mulligan has a new comment on Economix. In his post “Who cares about Fed funds?” Mulligan has the following remarkable quote:
“New research confirms that the Federal Reserve’s monetary policy has little effect on a number of financial markets, let alone the wider economy.”
Mulligan’s point apparently is that the Federal Reserve is not able to influence financial markets and as a consequence monetary policy is impotent. First of all we have to sadly conclude that monetarism is nonexistent at the University of Chicago – gone is the wisdom of Milton Friedman. I wonder if anybody at the University of Chicago even cares that Friedman would have turned 100 years in a few days.
Anyway, I wonder if Casey Mulligan ever spent any time looking at real financial markets – especially over the past four years. I have in a number of blog posts over the last couple of months demonstrated that the major ups and downs in both the US fixed income and equity markets have been driven by changes in monetary policy stance by the major global central banks – the Fed, the ECB and the People’s Bank of China. I could easy have demonstrated the same to be the case in the global commodity markets.
Maybe Casey Mulligan should have a look on the two graphs below. I think it is pretty hard to NOT to spot the importance of monetary policy changes on the markets.
Of course it would also be interesting to hear an explanation why banks, investment funds, hedge funds etc. around the world hire economists to forecast (guess?) what the Fed and other central banks will do if monetary policy will not have an impact on financial markets. Are bankers irrational Professor Mulligan?
Anyway, I find it incredible that anybody would make these claims and it seems like Casey Mulligan spend very little time looking at actual financial markets. It might be that he can find some odd models where monetary policy is not having an impact on financial markets, but it is certainly not the case in the world I live in.
Let me finally quote Scott Sumner who is as puzzled as I am about Mulligan’s comments:
“Yes, Mulligan is a UC economics professor. And yes, Milton Friedman is spinning faster and faster in his grave.”
Yes, indeed – Friedman would have been very upset by the fact that University of Chicago now is an institution where money doesn’t matter. It is sad indeed.
Update: Brad Delong is “slightly” more upset about Mulligan’s piece than Scott and I are…
PS Maybe professor Mulligan could explain to me why the US stock market rallied today? Was it a positive supply shock or had it anything to do with what ECB chief Draghi said? And then tell me again that markets do not care about monetary policy…