The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn't Matter
Christina D. Romer, David H. Romer
American Economic Review · 2013 · Volume 103 · Issue 3
Abstract
Monetary policy-makers' beliefs about how the economy functions are a key determinant of the conduct of policy. That monetary policy has little impact under the prevailing circumstances is a belief which has resurfaced periodically over the Federal Reserve's 100-year history. In both the 1930s and the 1970s a belief in the ineffectiveness of monetary policy led to policy inaction and poor economic outcomes. For some of the recent period, the same view appears to have limited the policy response to prolonged high unemployment in the presence of low inflation.
Keywords
Monetary Policy, Central Banks and Their Policies, Economic History: Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations: U.S., Canada: 1913-, Economic History: Financial Markets and Institutions: U.S.
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