Monetary Policy: Learning from the Past
Click here to read a piece by Barry Eichengreen, where he highlights the dangers of analogical reasoning in the area of monetary policy. He suggests that past experiences shape modern central banking practice - the Fed's policy is motivated by a desire to avoid its inaction in the early 1930s and the ECB's policy is motivated by Germany's desire to avoid the hyperinflation of the 1920s. However, these analogies may be the wrong ones for today's problems. To avoid faulty analogical reasoning, Eichengreen suggests having a portfolio of analogies from the past. The bottom line is that economists need to know and understand the past.