Interview: Prof. Larry Ball, Johns Hopkins University

Laurence Ball is a professor of economics at Johns Hopkins University

How reasonable is it to stick to the Fed’s choice of 2% inflation targeting per year in a depressed economy like today?

It is not reasonable. The primary goal of policy should be to restore full employment, which is still far away. It does not matter very much whether inflation is 2% or somewhat higher.

What is your take on the suggestions for the Fed to add “a healthy rate of nominal wage growth” to the list of monetary policy objectives?

I certainly think it would be desirable to have more rapid wage growth, but I am not sure whether it makes sense for the Fed to target that variable directly. The main way the Fed can contribute to a healthy economy is to promote strong growth in output and employment.

How critical is it from today’s perspective whether central banks apply a Keynesian or a neo-classical model for an appropriate monetary policy?

I'm not sure it is helpful to use those labels. The Fed should follow what I would call a pragmatic policy: the economy needs more jobs, and the way the Fed can help achieve that goal is by keeping interest rates low. If one wants to call that "Keynesian," that's OK, but that label can be confusing because it is used in a number of different ways.

Thank you very much

Laurence Ball is a professor of economics at Johns Hopkins University. In addition to his duties at Hopkins, Mr. Ball is a Research Associate of the National Bureau of Economic Research and a Visiting Scholar at the International Monetary Fund. 

His current book: Money, Banking and Financial Markets (2012), Second Edition.

A current news release by Prof. Ball: How a little inflation could lead to a lot more jobs.