Well, perhaps. I’d point to the part of exhibits 2 and 3 where we use the FRB/US model. Now, that is a large model with lots of persistence in it; a large number of lagged states and lagged errors are at work there. Let’s say you ask what the optimal parameterization of this simple policy rule would be. You ask it to pick up the very thing that I believe Glenn is describing. What it tells you is that, unless there is a high degree forward- looking expectations, the optimal policy doesn’t want that lag. It doesn’t want that lag to proxy for the same kind of things that Glenn argues empirically it is proxying for. Does that mean Glenn is wrong? Not necessarily. It could mean that the model is wrong. But it isn’t clear that what Glenn is referring to is not being adequately captured in what we’re describing in exhibits 2 and 3.
The same thing is true, I might add, about the term structure evidence. For this term structure evidence to explain what Glenn wants it to explain, he has to assume rational expectations. That’s a presumption in his analysis. But as you saw in exhibit 3, if there are rational expectations, the optimal strategy calls for a lot of persistence in the fed funds rate. So one can interpret Glenn’s evidence as suggesting that rational expectations are not there, in which case they shouldn’t have produced inertia in the first place. There again, it doesn’t mean that Glenn is wrong, but it does mean that there is friction between these two views, and it can’t be settled at this table.