I am making this a stand-alone post, rather than a comment on the article itself, to ensure that as many people see it as possible. In my recent piece on evidence that the Fed caused the housing boom, I argued that Henderson and Hummel were wrong for implying that the monetary base grew more rapidly in 2001 than in 2002. In contrast, I claimed that the average annual base grew more rapidly in 2002 than in 2001.
Well shucks, both claims are right. What happened is that the base grew very quickly in the last four months of 2001, partly because of the 9/11 attacks. So there is a difference between looking at a year’s growth by comparing start and end levels, versus computing the annual average and then comparing it to the next year’s average. If you want the specifics, I spell them out here.
As I explain in the blog post linked above, this clarification helps and hurts me in my dispute with H&H. On the one hand, it fits in with the “blame Alan” case because the monetary base expanded most rapidly right when he was cutting rates the most; the fed target fell from 6.5% to 1.75% in 2001 alone. On the other hand, pushing the huge spike in the base back a year, makes it less obvious that it was directly related to the ludicrous phase of the housing boom.