Kling on the Eurocrisis

First, listen to Scott Sumner argue that monetary policy in the U.S. was unintentionally contractionary in 2008. Then, read Izabella Kaminsky on monetary policy today in Europe.

the central bank transmission mechanism has been compromised because expansion or contraction of high-powered money makes no difference to the overall amount of money which is multiplied into the system.

Pointer from Tyler Cowen.

One way to look at the U.S. case is that the Fed bailed out the banks but carried out a contractionary monetary policy. The result was a steep recession. Is Europe going down that path? Kling

The Fed chased inflation up the ramp, always running a little late. Did the Fed intentionally ease money too much in 2003, then get caught having to tighten too fast in 2008?


We can give it a name, corruption, entanglement, bureaucratic slosh, asymmetric information. In time of rapid change no central banker is much better than our Fed. The economy too big for one Fed, the currency too widely used in the globe, etc etc. The Fed will have inforamtion loss, no doubt about it.