2015-18 Why we talk so much about monetary policy, and other monetary policy issues

As you have noticed, i mention monetary policy a lot. This is because it is the only game in town. In this article the author simply says:

Eurozone economic growth eases despite low oil prices; central bank under pressure to do more

Not a word about fiscal policy. With debts much higher now than before the Great Recession, there is little scope for fiscal policy.

In the second article the FED chair, Janet Yellen, stresses the need to evaluate new approaches to monetary policy that were introduced in the Great Recession. We will be talking about these approaches today. Bottom line: we are not sure how well they work. Monetary policy is hard.

The third article discusses Yellen's opposition to  a proposal by some politicians that monetary policy should be run by an inflexible rule (we will discuss the benefits and problems of using a rule today or in the next lecture  and see an example of such rule in chapter 14). She has three arguments:

1. Such rule would be too inflexible and would not allow the FED to react to events

2. Politicians do not have sufficient knowledge to design a good rule

3. Such rule would undermine central bank independence.