SMP: The Rule of Law vs the Rule of Experts

Comentario en Sound Money Project sobre cómo llevar adelante política monetaria.

Our worldviews shape the ways in which we approach problems, challenges, and questions. Our “worldviews,” as I refer to them in this post, are so deeply embedded in our minds that we don’t usually realize our thoughts are driven by them. Monetary policy is not free from this “worldview” effect.

There is a big debate in monetary policy on whether central banks should follow a monetary rule or have the ability to decide how to perform monetary policy at the policymaker’s discretion. In a world of second bests, the question underlying this debate is how errors would be minimized: by following the right rule (in itself another issue) or by giving central bankers discretionary powers. In many cases, what one side sees as an argument on their side, the opposite side sees as an argument in favor of theirs. For instance, the lack of precise knowledge about the economic situation can be an argument for a rule-based monetary policy or for a discretionary approach. Proponents of a rule-based monetary policy would argue that because our knowledge is limited, we should follow a rule that will, say in average, minimize the errors. However, one could also argue that because our knowledge is limited, a rule will be biased and therefore discretionary policy (if an expert is in charge) is a better option than an imperfect rule.

Seguir leyendo en SMP.

Central Banking and Crisis Management from the Perspective of Austrian Business Cycle Theory

Gunther Schnabl

University of Leipzig – Institute for Economic Policy

CESifo Working Paper Series No. 6179


The paper analyses the evolvement and effects of central bank crisis management since the mid 1980s based on a Hayek-Mises-Wicksell over-investment framework. It is shown that, given that the traditional transmission mechanism between monetary policy and consumer price inflation has collapsed, asymmetric monetary policy crisis management implies a convergence of interest rates towards zero and a gradual expansion of central bank balance sheets. From a Hayek-Mises-Wicksell perspective asymmetric central bank crisis management has contributed to financial market bubbles, decreasing marginal efficiency of investment, increasing income inequality and declining growth dynamics. The economic policy implication is a slow but decisive exit from ultra-expansionary monetary policies.

Number of Pages in PDF File: 42

Keywords: Hayek, Mises, Wicksell, monetary overinvestment theory, asymmetric monetary policy, financial crisis, Goodhart’s Law, marginal productivity of investment, secular stagnation

JEL Classification: E520, E580, F420, E630


Conferencia: Monetary Policy and The Natural Rate of Interest Rule

El próximo lunes 24 de febrero, a las 10 am (de Argentina), Erwin Rosen ofrecerá una conferencia virtual, en tiempo real y en inglés, acerca de la política monetaria y la regla de la tasa de interés natural.

Sus objetivos serán básicamente dos: 1) demostrar que la Fed ha fallado en su misión, y 2) que la Escuela Austriaca puede proponer mejores soluciones.

El tema de la presentación proviene de su tesis doctoral, la que tuve el placer de dirigir, desarrollada para el programa de doctorado del SMC, el que completara durante 2013.

Si no reside en Argentina, aquí puede convertir el horario al que corresponda en su país.

Los interesados deben inscribirse aquí para recibir el link de acceso.