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The Changing Effectiveness of Monetary Policy
- Source :
- Economies, Vol 1, Iss 3, Pp 49-64 (2013), Economies, Volume 1, Issue 3, Pages 49-64
- Publication Year :
- 2013
-
Abstract
- In the wake of the 2008 financial crisis, many countries are hoping that massive increases in their money supplies will revive their economies. Evaluating the effectiveness of this strategy using traditional statistical methods would require the construction of an extremely complex economic model of the world that showed how each country’s situation affected all other countries. No matter how complex that model was, it would always be subject to the criticism that it had omitted important variables. Omitting important variables from traditional statistical methods ruins all estimates and statistics. This paper uses a relatively new statistical method that solves the omitted variables problem. This technique produces a separate slope estimate for each observation which makes it possible to see how the estimated relationship has changed over time due to omitted variables. I find that the effectiveness of monetary policy has fallen between the first quarter of 2003 and the fourth quarter of 2012 by 14%, 36%, 38%, 32%, 29% and 69% for Japan, the UK, the USA, the Euro area, Brazil, and the Russian Federation respectively. I hypothesize that monetary policy is suffering from diminishing returns because it cannot address the fundamental problem with the world’s economy today<br />that problem is a global glut of savings that is either sitting idle or funding speculative bubbles.
- Subjects :
- Inflation
Macroeconomics
media_common.quotation_subject
Economics, Econometrics and Finance (miscellaneous)
glut of savings
monetary policy
jel:E
Development
jel:I
Gross domestic product
jel:F
jel:J
jel:Q
Economics
ddc:330
jel:O
inflation
gross domestic product
media_common
lcsh:HB71-74
Monetary policy
lcsh:Economics as a science
Quarter (United States coin)
Financial crisis
Criticism
Economic model
Diminishing returns
Subjects
Details
- Volume :
- 1
- Database :
- OpenAIRE
- Journal :
- Economies
- Accession number :
- edsair.doi.dedup.....4cef5730520568f7fe612d53655c95e5