Thursday, July 8, 2010

Matthew Yglesias » Monetary Policy Tighter Than It Appears

How loose is monetary policy right now? According to conventional wisdom, it’s very loose. After all, interest rates are low. According to Ben Bernanke’s 2004 paper, “Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment”:

A given short-term rate may thus be associated with relatively restrictive financial conditions (for example, if the term structure is sharply upward sloping and equity prices are depressed)

Go read the whole (very short) thing. Monetary policy may not be as loose as many people (including some economists) think. Given that, does anyone still think we ought to try and use fiscal policy to offset a tight of monetary policy?

Posted via email from rhymeswithclown's posterous

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