Irresponsible monetary policy can undermine prosperity by promoting business cycles and otherwise preventing the price system from reflecting the true scarcity of various goods and services. Sound monetary policy limits such damaging distortions. In a fiat monetary system, it does so by assigning a central bank the overarching objective of maintaining a stable and predictable overall level of spending on goods and services, while insulating it from political pressure to pursue other, conflicting ends. But in a free society that attaches a high value to competition, consumer choice, and innovation, monetary authorities should also allow people the freedom to employ unofficial substitutes for official fiat currency: if the official monetary standard is to prevail, it should do so because it is well‐managed and not because alternatives have been suppressed.
Monetary Policy
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Populism and the Future of the Fed
The 2008 financial crisis and the COVID-19 pandemic greatly expanded the Fed’s scope and power. As the bright line between monetary and fiscal policy fades, and the threat of fiscal dominance increases, a robust discussion of the Fed’s future is warranted.
Featured Studies
Maintaining Distance between Monetary and Fiscal Policy
Adopting a rules‐based approach to the conduct of monetary policy would help safeguard central bank independence and promote both monetary and financial stability.
By James A. Dorn
Ground Proposals for “Helicopter Money”
“Helicopter money” is a fascinating theoretical construct that has proven useful in advancing economists’ understanding of various subtle points of monetary theory. But it risks undermining both Congress’s power of the purse and the Federal Reserve System’s already tenuous independence.
By George Selgin