My views on monetary economics

Source: EconLog
by Scott Sumner

"The lesson of the Great Recession is that macroeconomists need to spend less attention on the financial system. Bernanke attempted to integrate the financial system into macro in his famous 1983 AER article, which argued that banking problems directly depressed output during the early 1930s. That led Bernanke and others to wrongly conclude that fixing the banking problem was the way to stabilize the economy in late 2008. In fact, the Fed needed to use monetary policy to try to prevent a steep fall in NGDP. It did not even attempt to do so. Indeed the (contractionary) monetary policy of interest on reserves (adopted in October 2008) was aimed at depressing the economy, while the Fed worked to rescue the banking system." (06/29/17)