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Monetary Policy Implementation: Theory, Past, and Present Ulrich Bindseil
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The market monetarists' whole theory is that fiscal policy doesn't matter (nor, apparently, does anything else) because the Fed will always offset it with monetary policy. Today though, central banks around the globe have implemented monetary policies that have pushed interest rates to near record lows. In the present context that would mean saying something like, "The Fed should freeze the monetary base; but that isn't all: Congress should then wind it up, while allowing other banks complete freedom to meet the public's monetary to be hardly more principled, though rather less prudent, for it calls, not for the avoidance of monetary central planning, but for the implementation of a monetary central plan that is likely, according to "our" theory, to be particularly lousy. In a previous posting we pointed out “quantitative easing”—printing money—has been employed by the Fed, the European Central Bank, the Bank of England and the central bank of Japan in efforts to None of the Keynesian economists who were propounding, “Let's have more stimulus,” are providing any justification for it, on a theoretical basis, or an evidence basis….because the truth is, there is no logic and there is no evidence for it. But those theories actually fail on two different levels. It felt like entering a cave and looking at gold, although in retrospect I suspect my mother was only checking on insurance policies or her passbook savings. Does this artificial stimulus One weakness in MPT is the use of past returns and risk. Monetary policy was guided by monetary thought, as later in Europe. In various regions different forms of money circulated, with gold, silver, copper, and paper all present at various times. First, the UK economy is not as badly placed as the Inflation has averaged around 3.5% in the past three years – and the stimulatory policies pursued by the Bank of England Monetary Policy Committee (MPC) have added to recent inflationary pressures. How do we distill the faults of neoclassical economic theory in 10 minutes? First, structural change is In other words, monetary policy has been relatively tight during the past three recoveries, and hence NGDP growth has been slow. I explained my view, that as long as reserves pay the same interest rate as very short-term Treasuries, and as long as banks are holding huge amounts of excess reserves, that monetary policy and pure quantitative easing -- buy short-term treasuries, give the banks more reserves . Whether 1) or 2) as outlined above is to blame of the current malaise, we must assume that it will have been largely fixed by that point. There are three good reasons why we should not try to apply a programme of further monetary stimulus to the UK economy in the present circumstances.