Economics, Econometrics and Finance
3 years ago

Interest rates are not reliable indicators of monetary policy stance anymore!

SSRN Electronic Journal
A Critique of Interest Rate–Oriented Monetary Economics
Scott Sumner

Paper Summary

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Interest rates are not a reliable way to measure the impact of monetary policy. Some policies that reduce money supply can lead to lower interest rates, while others can cause rates to rise. Instead, economists should look at market expectations of inflation or GDP growth to gauge the effectiveness of monetary policy. The Federal Reserve should stop targeting interest rates.