Perhaps academic research ran off the rails for 40 years producing nothing of value. Social sciences can do that. Perhaps our policy makers are stuck with simple stories they learned as undergraduates; and, as has happened countless times before, new ideas will percolate up when the generation trained in the 1980s makes their way to [the] top of policy circles.
I was with him up to the semicolon. But Fischer and his students made it to the top of policy circles some time ago. My sense is that their policy decisions are not driven by the models that they taught graduate students. They are going on the basis of intuition, and the intuition is in turn shaped more by the undergraduate IS/LM story than by anything else.
My own view is that the tools that they are playing with have very little impact on financial markets or the economy. Meanwhile, the bank regulations, both formal rules and informal slaps on the wrist, play a huge rule in directing bank capital toward government bonds and away from commercial loans. And that capital allocation has real consequences.