Monetary Offset : A Critique

New frameworks for monetary policy have been proposed in response to the Great recession, the slow recovery afterward, and the problem of short-term nominal interest rates at the zero bound. One school of thought that emerged is called "market monetarism," advocating, along with other proposals, nominal gross domestic product targeting (NGDP) by The Federal Reserve. Numerous market monetarists believe in "monetary offset," the idea that the fiscal stimulus multiplier is zero. They argue the Federal Reserve has the tools to offset aggregate demand shocks by fiscal policy completely. This paper will offer a critique of monetary offset in light of recent increases in inflation and the current framework of monetary policy utilized by the Federal Reserve. I will use a straightforward AD-AS model of the economy where the central bank uses the Taylor Rule under a "restrained discretion” framework