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Introduction

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Monetary policy plays a critical role in the economy. Central banks use monetary policy to promote robust economic growth and to stabilize the economy when growth is uneven. The independence of central banks allows them to make difficult decisions in the face of political pressure. Understanding monetary policy can help us avoid future recessions or financial crises.

Discussion Questions

  1. What makes monetary policy important?
  2. How does monetary policy relate to politics?
  3. What are the cost and benefits to society of central bank independence? 

Additional Readings

  • Read “Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras” by John Taylor. Available here.
  • Read “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong” by John Taylor. Available here.