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The necessity for a strategic approach to monetary policy

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  • Mickey D. Levy

    (Berenberg Capital Markets, LLC)

Abstract

The Fed has a spotty track record, and its discretionary approach to conducting monetary policy will lead to the same mistakes it made in the past. I emphasize the importance of adopting a strategic framework for conducting monetary policy. The Fed has constantly changed the course of monetary policy in response to high-frequency data and other temporary factors. The Fed’s excessive monetary ease has distorted economic and financial behavior. The Fed should base its policy on longer-run objectives rather than short-run economic and financial fluctuations, and communicate these objectives to the public and to financial markets. Under the Financial Choice Act, the Fed would have to establish a strategic guideline, and explain to Congress why monetary policy may be deviating from the guideline. I respect the Fed and see the need for change to maintain its credibility. The Fed must acknowledge its shortfalls and modify its focus.

Suggested Citation

  • Mickey D. Levy, 2017. "The necessity for a strategic approach to monetary policy," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 114-117, April.
    • Handle: RePEc:pal:buseco:v:52:y:2017:i:2:d:10.1057_s11369-017-0037-1
    DOI: 10.1057/s11369-017-0037-1
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    References listed on IDEAS

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    1. Thomas Laubach & John C. Williams, 2015. "Measuring the natural rate of interest redux," Working Paper Series 2015-16, Federal Reserve Bank of San Francisco.
    2. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
    3. Claudio Borio, 2017. "Secular stagnation or financial cycle drag?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 87-98, April.
    4. John B. Taylor, 2009. "The Need for a Clear and Credible Exit Strategy," Book Chapters, in: John D. Ciorciari & John Taylor (ed.), The Road Ahead for the Fed, chapter 6, Hoover Institution, Stanford University.
    5. David J. Stockton, 2017. "Threats to monetary policy independence: reasons to be concerned," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 118-122, April.
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