IT’S BACK TO HAYEK ALL OVER AGAIN

Olivier Blanchard:

Monetary policy has to go beyond inflation stability, adding output and financial stability to the list of targets, and adding macro-prudential measures to the list of instruments.

Of course, Hayek established the fundamental significance of this point in the 1920s, in his book Monetary Theory and the Trade Cycle.

Much can be added to Hayek’s bare-bones discussion, but the fundamental significance of the point made in that book it a permanent addition to economic science — a fundamental insight which for some reason needs to be re-discovered anew by each new cohort of macroeconomists.

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