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Monetary Policy
Can monetary policy save the economy?
In rarefied economic circles, that’s a hotly debated question. On one side you’ll find a group of economists — call them “monetarists” — who think that the Federal Reserve has enough tools to pull us out of the recession. Lined up on the other side are Keynesian economists, who contend that monetary policy alone falls short; Congress and the president need to employ fiscal stimulus (i.e., spend billions and billions of dollars) to get the economy moving again.
Monetarists such as Tyler Cowen and Scott Sumner argue that given time, creative monetary policy will work — and that most other government meddling is likely a waste of money. But the Keynesians, notably Paul Krugman and Brad DeLong, point out that the federal funds rate — the Fed’s primary monetary tool — is already close to zero and other monetary strategies are of dubious value. To dive into the debate, follow the links below.
Editor's Pick
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Deflation: Should We Worry?
An extended drop in the price of goods and services is called deflation. It often happens during a recession, and it can hurt the economy further. MoneyWatch.com's Jill Schlesinger explains.
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Did We Just Waste $787 Billion?
Monetarist economist Garett Jones and Keynesian Menzie Chinn debate whether Obama’s stimulus plan has a prayer of ever working.
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The Real Lesson of the Great Depression
We spent our way back to prosperity, right? Nope, says Tyler Cowen. Sound monetary policies played a large and underappreciated role in ending the Depression.
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How Spending Will Save Us
A massive fiscal stimulus did bring us out of the Depression, writes Paul Krugman. But this time around, the monetary tools are tapped out and the fiscal stimulus isn’t up to the task.
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I Beg to Differ, Mr. Krugman
In an open letter to Paul Krugman, economist Scott Sumner makes the case for creative monetary policies rather than fiscal stimulus.
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In Bernanke We Trust
A federal funds rate of zero is no problem according to University of Chicago economics professor Robert Lucas, who says the Fed can still stimulate spending plenty.
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Diamond withdraws nomination for Fed board
WASHINGTON (AP) — Nobel Prize-winning economist Peter Diamond is withdrawing his nomination for the Federal Reserve board, expressing frustration with Republicans who had blocked his appointment and questioned his practical experience.Diamond said it would be easy to blame his failed...
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Diamond withdrawing nomination for Fed board
NEW YORK (AP) — Nobel Prize-winning economist Peter Diamond is withdrawing his nomination for the Federal Reserve board.In an op-ed piece first published on The New York Times website on Sunday and in its print edition on Monday, Diamond seemed frustrated by the confirmation process,...
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Bank of Korea leaves key rate at 3 percent
SEOUL, South Korea (AP) — South Korea's central bank left its key interest rate unchanged for a second straight month amid signs inflation is moderating.The Bank of Korea kept the benchmark base rate at 3 percent at a monthly monetary policy meeting Friday.The decision was a surprise. A...
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Ben Bernanke Speaks: How Did He Do?
Ben Bernanke's first press conference after a rate-policy meeting was supposed to make the Fed's infamously cryptic language clearer to the markets and human beings alike. Based on the early notices, he failed. by Dan Burrows
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Arizona Shooter's Obsession with Returning to the Gold Standard
Jared Lee Loughner, the suspect in the attempted assassination of Representative Gabrielle Giffords (D-Ariz.) and the shooting of more than 20 others, believed -- to the extent that his beliefs can be determined from his rambling thoughts posted at YouTube and elsewhere --Â that the...
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Don't Expect Miracles from Monetary Policy
The weekly report on new claims for unemployment insurance came out today, and it's one of the better high frequency indications of the state of the labor market. Because this report beat expectations, claims fell by 21,000, it is being hailed as good news by some analysts, but I don't see it....
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Reducing the Influence Banks Have over Monetary Policy
There's some news on the Dodd proposal for financial reform, something I wrote about when the details of the proposal initially came out. This is from the earlier post (if you are familiar with the structure of the Federal Reserve District Banks, you can skip the first part of this): What's...
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Monetary Policy and Unemployment: Should the Fed have Done More?
Should the Fed have done more to combat the unemployment problem? In examining the costs and benefits of further easing, I have made almost all of the arguments against further easing by the Fed made below, i.e. that further easing by the Fed may not have much additional effect on long-term...
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Why Do Federal Reserve Board Seats Remain Unfilled?
Right now there are two unfilled positions on the seven member Federal Reserve Board. If nothing is done to fill those positions, the number will increase to three in June of this year when Governor and Vice-Chairman Don Kohn retires. One open Board position should not go unfilled for this...
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How Do You Beat 94 Percent of Mutual Funds? Join the Circus
Many brokers claim that successful stock picking is the result of skill, not luck. One Russian resident showed that the claim is little more than a bunch of bananas. by Larry Swedroe
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