Two months ago, I proposed a public service project for the readers of this blog, in this post:
I hope that many of you will try your hand at editing it further. For example, I think it is true that in some models with Wallace neutrality, when the nominal interest rate is already zero, the only way to stimulate the economy by monetary policy is to make people expect higher output gaps in the future, after the economy is no longer at the zero lower bound, as discussed in my post “Should the Fed Promise to Do the Wrong Thing in the Future to Have the Right Effect Now?” If it were possible to pin this point down better theoretically and explain exactly how Wallace neutrality figures into the result, that would be a great addition to the wikipedia article.
For the theoretically inclined, a good place to start in thinking about the “Should the Fed Promise to Do the Wrong Thing in the Future to Have the Right Effect Now?” dilemma is Ivan Werning’s continuous-time model of monetary and fiscal policy at the Zero Lower Bound when Wallace neutrality holds: “Managing a Liquidity Trap: Monetary and Fiscal Policy.” More generally, references to ways in which Wallace neutrality has explicitly or implicitly entered into real-world discussions of monetary policy would be of interest in the article.
I very much appreciate Fudong’s efforts and am glad to see this project on its way. Let’s not stop here.