I am not able to get anyone to debate me on monetary policy in a liquidity trap. Therefore I resort to crude provocation.
I recall two claims about monetary policy which were not controversial until this year. First that the effects of a shift in monetary policy peak after roughly 6 months. Second that it acts through investment and especially housing investment (the second follows from the view that it acts via interest rates but not the short term rates which the Fed can control but medium and long term rates which matter a lot for housing and some for investment in productive capital).
After fiddling with the dates to avoid the inconvenient fact that medium term nominal interest rates went up when the actual QE2 purchases began the money supply side economists decided that the date the policy began was late August. That means that the data you present here would, in a sane world, be the last nail in the coffin of the hypothesis that the Fed can stimulate the US economy when it is in a liquidity trap by buying 7 year Treasury notes.
I get rude after the jump.
I note already that 7 year real interest rates are higher than they were when the actual purchases started and equal to what they were when Bernanke first mentioned QE2 (late August).
So I ask you what evidence could possibly convince you that QE2 was ineffective. You have a powerful imagination and should be able to think of something (I can’t).
I also note that the quality (intelligence and integrity) of data analysis of the money supply side economists reminds me of the data analysis by supply side economists. I think they have resorted to each and every cheap rhetorical trick used by the supply siders. For every bit of bogus supply side data abuse, I claim I can find the same bogus trick played by advocates of quantitative easing.
If I am presented with no such examples, I will conclude that the money supply siders admit that they as bad as supply siders. I will present my examples of similarly bogus data analysis tomorrow.
update: as promised, they are posted. But since they are not up to angrybear levels of seriosness and civility (would you believe raging Shrew ?) they are posted at Robert’s Stochastic Thoughts