David Altig takes my post on the fiscal-monetary policy mix (actually David was reading one of my comments to another Angrybear post where I made the same point) and graphs some empirical evidence. I had argued that the 1993 deal between President Clinton and the Federal Reserve was one of fiscal restraint and easy money. At one level, David agrees:
You are not surprised, I presume, to see that there is a pretty good case on the fiscal policy characterization – though it is interesting that the G.H.W Bush years look every bit as good as the Clinton years by the standardized surplus measure … The case for easy money is a bit tougher. If you accept the 10-year/funds-rate spread as being related to the relative ease of monetary policy, then the period from 1993 to 1995 looks relatively stimulative. But the latter part of the decade is not so readily characterized in that manner – and that is precisely the time when the budget deficits really shrink.
So David is disputing any claim that monetary policy was stimulative for the end Clinton term. Nor should it have been. The period from 1993 to 1995 was precisely when we needed aggregate demand stimulus to get us closer to full employment. From 1996 to 2000, however, we enjoyed an outward shift of the IS curve from an investment boom. Wouldn’t that 1970 paper by William Poole suggest that the monetary policy switch from stimulative to restraint?