JW Mason — Five Thoughts on Monetary Policy

1. Monetary policy may operate on (a) the quantity of bank liabilities (money); (b) the quantity of bank assets (credit); the price of one or more assets relative to money (an interest rate); and/or (d) the price of money, normally relative to some other money (an exchange rate).… 

2. Regardless of which margin it operates on, monetary policy in its modern sense typically targets a level of aggregate output.… 

3. Orthodox macroeconomics confuses the issue by assuming a world of infinite liquidity, where anyone can spend as much they like in any given period, subject to an intertemporal budget constraint that their spending over the infinite future must equal their income over that same infinite future.… 

4. Getting back to reality, the fundamental tradeoff in the financial system is between flexibility and stability.… 

5. Policy is naturalized. The fundamental fact about monetary policy is that it is central planning that cannot speak its name.…

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Five Thoughts on Monetary PolicyJW Mason | Assistant Professor of Economics, John Jay College, City University of New York