The Rationale for Independent Monetary Policy

In the present paper, McCallum argues that a crucial aspect of monetary policy is a systematic discrepancy in the times that elapse after policy actions before the observance of real and monetary effects. This discrepancy lends an inflationary bias toward policy efforts that is more pronounced, the more impatient is the policymaker. Finally, McCallum compares current monetary practices with those specified by the U.S. Constitution, and indicate how the intentions promoted by the Constitution could be fulfilled under today’s fiat money system.

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