How to Make Monetary Policy More Effective

Nine years after the beginning of the Great Recession in 2008 and at least seven years since the recovery from the Great Recession began, industrialized economies are experiencing sluggish growth and inflation that is persistently under targeted rates. The unconventional monetary policies that have been tried by different central banks have not generally been successful in achieving their goals. We suggest here that quantitative easing could be made much more effective by making expansions of the monetary base permanent. In turn, a commitment to permanent monetary expansion would be more credible if central banks adopted targets for nominal aggregates such as the price level or nominal GDP. A level target would also allay fears of runaway inflation.