Hetzel on “Learning from the Pandemic Monetary Policy Experiment”

Robert Hetzel undoubtebly is one of the most important monetary thinkers of our time and for more than five decades he has been involved in US monetary policy making and has furthermore greatly contributed to monetary theory and monetary history.

And he is one of my absolut biggest idols in the world of monetary thinking and I am proud to call Bob my friend.

Luckily Bob and I rarely disagree, but I continue to learn from Bob and anybody interested in monetary matters should read Bob’s papers.

Bob now has a new paper out – published by the Mercatus Center where he now is Senior Affiliated Scholar.


In response to the COVID-19 pandemic, which unfurled starting in March 2020 and raised unemployment dramatically, the Federal Open Market Committee (FOMC) adopted a highly expansionary monetary policy. The policy restored the activist policy of aggregate demand management that had characterized the 1970s. It did so in two respects. First, the FOMC rejected the prior Volcker-Greenspan policy of raising
the funds rate preemptively to preserve price stability. Second, through quantitative easing, it created an enormous amount of money by monetizing government debt. Inthe 1970s, the activist policy was destabilizing. Reflecting the “long and variable lags”phenomenon highlighted by Milton Friedman, a temporary reduction in unemployment from monetary stimulus gave way in time to a sustained increase in inflation. In response, the succeeding Volcker-Greenspan FOMCs rejected an activist monetary
policy in favor of a neutral policy. That neutral policy concentrated on achieving low trend inflation and abandoned any attempt to lower unemployment by exploiting the inflation-unemployment tradeoffs promised by the Phillips curve. The success or failure of the FOMC’s activist monetary policy offers yet another opportunity to understand what types of monetary policies stabilize or destabilize the economy.

Read Bob’s paper here.

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