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11/01/2013

Comments

Mitchell Brister

In the same way the models are extremely important but at the same time not the final answer, I believe the FED's past policies explained in this argument are important. Obviously what this article has proven is that there is definitely a place for monetary policy. It has shown that the two times in our past where we have failed, is when there was a pesimistic view on monetary policy. Obviously as the article says there is monetary policy in place now but it is hard to tell the thoughts behind the FED's actions because it is so soon. There have been good arguments agains monetary policy which can be considered, but having no to little monetary policy would be foolish. We would have learned nothing from history. The banks currently hold all the money and they key is to somehow get the firms to borrow. Although there is no magic answer to the problem, I believe this article has shown us that no monetary policy isn't it.

Krysta Huber

While this article certainly raises some interesting points, its word choice raises a significant red flag: it pushes for causality instead of correlation. In its introduction, it does say that there is "a link between pessimistic beliefs and policy inaction," which might infer a correlation. But the conclusion itself uses the word cause. While the journal article doesn't argue that the author's argument is the only relevant one, we need to be careful. When you argue that something is a causality, you're making a blanket statement: if everyone does x, y will always happen. This just isn't true. From a journalistic standpoint, I would not be willing to cite this article in a piece about the Fed.

Syed Ali

As Mitchell explained, this article discusses the range of responses that the Federal Reserve has employed, in seeking to ease economic downturns over the past century. The Fed is entrusted with setting monetary policy, and maintaining low unemployment and steady inflation rates. The writers of this article argue that, over the past century, the Fed has been both too aggressive and too timid at times in responding to recessions; however, on the whole, they say the Fed has erred towards the timid side. The authors explain how the Federal Reserve was reluctant to exert its monetary power during both the Great Depression and the 1960s/70s; “undue pessimism” about the impact of monetary policy led to inaction, whereas monetary intervention might have promoted more desirable economic outcomes. After the history lesson, the article implies that over the past few years, another period of “dismal macroeconomic performance,” the Reserve is repeating the past by being overly reticent in using monetary policy. For example, various leading figures at the Fed have argued that their tools are limited, and unable to make up for the shortfall in aggregate demand.

This reminds me of the earlier discussion about whether or not the Fed should push for higher inflation rates, purportedly to return us to the natural rate of unemployment (along the LRAS curve). Does the Fed have enough of an impact on the overall US economy to be able to return it to its natural rate of unemployment? If it does, should we artificially return the economy to LRAS, or should we wait on it to do so by itself, naturally, through the business cycle? Personally, I think that the sluggishness of the economy for the past several years warrants a change in our approach – whether this should be a different fiscal strategy or a more aggressive monetary approach, I’m not sure.

Jean Turlington

Reading this article after watching the movie on the Federal Reserve last night, gave me a slightly different perspective. The movie was definitely more critical of the Federal Reserve, but this article also points out some relevant flaws in its monetary policy throughout the years. I think at times the movie might have been too harsh saying decisions of the federal reserve were catastrophic. This article points out that the FED has at times been too timid in its policy and at times been to proactive in its policy but usually acting more timid than proactive. Monetary policy can cause changes in inflation and unemployment and stabilize things. Although at first the FED was skeptical of how effective monetary policy can be Chairs like Paul Volcker have shown that it really can improve things in the long run. I think the most important thing from this article is that the FED takes into account what has happened in the past when making decisions. The situation is never exactly the same, but looking at the past and the results of decisions in the past can lead to more informed decisions in the future.

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