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Well, being subject to S&D of money is why they have the mandate to keep inflation at 2%, no? You can argue that measuring inflation is a poor way, but you'd ha
by barumrho 4y ago
Well, being subject to S&D of money is why they have the mandate to keep inflation at 2%, no? You can argue that measuring inflation is a poor way, but you'd have to come up with a better alternative.
- WalterBright 4y agoThe central banks do not control inflation, they can only respond to it.
- barumrho 4y agoYes, that is true, but it is still part of their mandate. Supply and demand of money gets reflected in inflation and the Fed responds by changing interest rates. Isn't this a free market mechanism?
- WalterBright 4y ago> Isn't this a free market mechanism? No. In Friedman's "Monetary History of the United States" he shows how the Fed setting interest rates was rather erratic and much more unstable than the earlier free market mechanism. The Fed would guess at what the S+D point was, since the Fed was not subject to market forces. This meant they were always late and always wrong.
- SSJPython 4y agoInflation is a monetary phenomenon. Since the Central Bank controls the money supply, then by definition the Central Bank controls inflation.
- WalterBright 4y agoI meant they control the interest rates, which do not control inflation. Inflation comes about from the creation of money, which the central bank does to fund the government deficits.
- imtringued 4y agoThe central bank can limit money creation but can't force consumers, businesses or the treasury to borrow or spend money.