Rewriting the Monetary-Policy Script
Many central bankers, intoxicated by rigid neo-Keynesian models of the effects of interest rates on demand and inflation, are ignoring a major lesson from decades of experimentation: the impact of monetary policy cannot be predicted with a high degree of certainty or accuracy. To manage risk, flexibility is key.
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MUNICH – How long will major central banks blindly rely on rigid rules to control inflation and stimulate growth? Given the clear benefits of nimble monetary policy, central bankers need to open their eyes to the possibilities that flexibility affords.