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Theory ahead of rhetoric: economic policy for a "new economy"

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    The most important theoretical developments in economics of the past 20 years undermine the notion that substantial benefits are to be had from policies aimed at smoothing what has come to be known as the “business cycle.” These fine-tuning policies, moreover, may prove costly if their price is higher, unpredictable inflation. Although policymakers may have conquered the fine-tuning impulse, they have perpetuated the language that accompanies it. That is, the language of monetary policy has failed to keep pace with theory and practice. In a world where expectations matter, the language of policymakers can have consequences. As we confront the challenges of financial innovation, rapid globalization, and the “new economy,” these are complications we can ill afford. It is time to align rhetoric with reality.

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    Article provided by Federal Reserve Bank of Cleveland in its journal Annual Report.

    Volume (Year): (1999)
    Issue (Month): ()
    Pages: 6-18

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    Handle: RePEc:fip:fedcar:y:1999:p:6-18
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