Monday, March 9, 2009

History Lesson: Use More Unconventional Monetary Policy

Tyler Cowen takes note of Harold Vatter's work that shows monetary policy was a key part of the World War II economic expansion. These results are consistent with Christina Romer's study that shows monetary policy rather than fiscal policy ended the Great Depression. Now these were unconventional monetary policies--FDR choosing not to sterilize gold inflows in the 1930s--but they worked and should help shape the current debate over how best to stabilize the economy. It seems odd that those observers who like to invoke the Great Depression when thinking about macroeconomic problems today often seem to overlook this successful use of unconventional monetary policy. Fortunately, other observers like Tyler Cowen, Nick Rowe, and Scott Sumner do believe monetary policy still packs a punch and have been making the case in the blogosphere. I hope policymakers and other influential observers are listening.

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