Coats on “What is wrong with our monetary policy?”

Former Chief of the SDR Division at the IMF Warren Coats unpacks a statement by Senator Jeff Merkley that

“The Fed should be using its economic expertise to highlight the long-term devastating impacts of failing to provide the opportunity for the skills needed for the economy of the future.” [1]

Warren’s paper examines monetary management in the United States – since the Nixon shock of closing the gold window and launching wage and price controls – to research the statement above. He finds:

  • No tradeoff exists between employment and inflation in the long run.
  • Radical innovations in New Zealand sparked rules that ultimately fell short of expectations.
  • NGDP targeting ignores the benefits of stable money.
  • The return to a hard anchor for monetary policy – such as the SDR – is attractive.

Although CFS is not promoting the idea of a newfound use for the SDR, monetary policy is in need of a rethink. Warren’s ideas are thoughtful and informative.

To view the full paper:
http://centerforfinancialstability.org/research/Coats_CFS_100516.pdf

As always, CFS welcomes opinion.

[1] Ylan Q. Mui, https://www.washingtonpost.com/news/wonk/wp/2016/08/26/liberals-fought-for-janet-yellen-to-lead-the-fed-now-they-hope-shes-more-more-ally-than-adversary/ The Washington Post Aug. 27, 2016

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