Quote of the Day

“There seems to be a view that monetary policy is the solution to most, if not all, economic ills. Not only is this not true, it is a dangerous misconception and runs the risk of setting up expectations that monetary policy can achieve objectives it cannot attain . . . to ensure the credibility of monetary policy, we should never ask monetary policy to do more than it can do.”

Charles Plosser

One response to “Quote of the Day

  1. It appears “Monetary policy’s role in the economy?” misrepresents Plosser a bit. What he apparently said was that monetary policy has limited power to *fix* things. He didn’t say it always has unlimited power. And he would be correct to say so.

    Unfortunately, as we’ve seen in the 1920s, the 1970s, the first part of this decade, and then now, monetary policy has incredible power…to wreck an economy. Yet so many people ignore what central banks have done in the first place, and call upon the same central bankers to “fix things.”

    The disappointing thing about Plosser is that he thinks a central bank can determine what “price stability” is, let alone “maximum unemployment.”

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