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The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn't Matter

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  • Christina D. Romer
  • David H. Romer

Abstract

Monetary policy-makers' beliefs about how the economy functions are a key determinant of the conduct of policy. That monetary policy has little impact under the prevailing circumstances is a belief which has resurfaced periodically over the Federal Reserve's 100-year history. In both the 1930s and the 1970s a belief in the ineffectiveness of monetary policy led to policy inaction and poor economic outcomes. For some of the recent period, the same view appears to have limited the policy response to prolonged high unemployment in the presence of low inflation.

Suggested Citation

  • Christina D. Romer & David H. Romer, 2013. "The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn't Matter," American Economic Review, American Economic Association, vol. 103(3), pages 55-60, May.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:55-60
    DOI: 10.1257/aer.103.3.55
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    References listed on IDEAS

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    1. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
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    3. Joseph E. Gagnon, 2009. "The World Needs Further Monetary Ease, Not an Early Exit," Policy Briefs PB09-22, Peterson Institute for International Economics.
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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