Scott Sumner: The money illusion: market monetarism, the great recession, and the future of monetary policy

Abstract

"The Money Illusion is George Mason University economist Scott Sumner's end-to-end case for an evolved, less discretionary approach to monetary policy, which he and his cohort have termed "market monetarism." The nominal use of "market" here is telling: Sumner argues that public confidence in central banking institutions like the Fed is central, and as critical as forecasting, to ensuring the health and stability of the economy. To achieve it, he makes a case that monetary policy should be indexed against a pre-set growth trajectory (in the form of a steadily increasing nominal GDP), not regulated ad-hoc through interpretations of short-term market changes. As Sumner tells it, the Fed is simultaneously responsible for the Great Recession and our best safeguard against having it happen again. Part of that is a responsibility to chart a course, and to do so with transparency"--