Thursday, November 26, 2009

A Must Read on Monetary Economics

The book that played a pivotal role in shaping my understanding of monetary economics is now available online at no cost: Less Than Zero by George Selgin. Among other things, this book will help one (1) appreciate why stabilizing nominal spending should be the ultimate objective of monetary policy and (2) why the deflationary pressures of 2009 were very different than those of 2003.


  1. Any thoughts on the wider issues raised by Selgin, such as the desirability of a move towards free banking ? At the very least he says we need to get rid of deposit insurance (see his interview in The Region)

  2. He makes a compelling case for free banking. I just find his productivity norm arguments even more compelling. I also understand the latter issue better and see it as more attainable.

  3. It is worth trying nominal GDP targeting. But arguably this is a second order issue. The larger problem of monetary policy right now is what Andrew Haldane at the Bank of England has called the doom loop - the issue of how to reduce systemic risk in the financial system by containing the too big to fail institutions. I think John Cochrane is on the right track by suggesting that institutions that wish to run a hedge fund do not also receive deposit insurance - a sort of return to Glass-Steagall.