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Conducting Monetary Policy in a Complex, Adaptive Economy: Past Mistakes and Future Possibilities

William R. White ()
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William R. White: Dr. William R. White Leimgrubenweg 9, 4102 Binningen, Switzerland

Credit and Capital Markets, 2017, vol. 50, issue 2, 213-235

Abstract: The global economy has performed very poorly since the onset of the crisis in 2008. This paper argues that easy monetary policy has actually worsened economic prospects to date, being based on a fundamental, ontological error. The economy is not an understandable and controllable machine as assumed by conventional macroeconomic theory. Rather, the economy is a complex, adaptive system, like many others in nature and society, in which policies can have significant, unintended consequences. Among the unintended consequences of easy monetary policies to date have been a significant increase in the level of non-financial debt, the threat of greater financial instability and a decline in the potential growth rate. The risks posed by these unintended consequences imply that governments, not central banks, must finally take responsibility for resolving the crisis. Embracing complexity also leads to many practical suggestions as to how monetary policy might be better conducted in future.

JEL-codes: E14 E52 B52 B53 (search for similar items in EconPapers)
Date: 2017
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Page updated 2019-08-03
Handle: RePEc:kuk:journl:v:50:y:2017:i:2:p:213-235