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<blockquote data-quote="fishtm2001" data-source="post: 4890086" data-attributes="member: 54375"><p>"As many of us explained before this happened, being conservative about policy risks a long term deterioration in output and prosperity. The upside risk was trivial in comparison because raising interest rates are very good at keeping inflation steady in the medium to long term.</p><p></p><p></p><p></p><p>This is the central argument about why it’s best to overshoot on fiscal stimulus rather than do exactly what you think you need to do to hit the level of output that stabilises inflation. It is the argument of asymmetric risks. If you are conservative or do exactly what you think you need to do, the risk that you get things wrong because the stimulus turns out to be insufficient (because your calculations were wrong or unexpected things happened) is much greater than the risk that you overshoot. If you overshoot you quickly get higher interest rates and a temporary blip in inflation. If you undershoot it will take you some time to realise what has happened, and you will have lost real resources for everyone in the economy forever."</p><p></p><p>mainlymacro.blogspot.com</p></blockquote><p></p>
[QUOTE="fishtm2001, post: 4890086, member: 54375"] "As many of us explained before this happened, being conservative about policy risks a long term deterioration in output and prosperity. The upside risk was trivial in comparison because raising interest rates are very good at keeping inflation steady in the medium to long term. This is the central argument about why it’s best to overshoot on fiscal stimulus rather than do exactly what you think you need to do to hit the level of output that stabilises inflation. It is the argument of asymmetric risks. If you are conservative or do exactly what you think you need to do, the risk that you get things wrong because the stimulus turns out to be insufficient (because your calculations were wrong or unexpected things happened) is much greater than the risk that you overshoot. If you overshoot you quickly get higher interest rates and a temporary blip in inflation. If you undershoot it will take you some time to realise what has happened, and you will have lost real resources for everyone in the economy forever." mainlymacro.blogspot.com [/QUOTE]
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