Monetary policy is important for two key reasons. First, monetary policy determines the path of the price level, and it heavily influences other variables like nominal wages and nominal GDP. As seen in the 1970s, high inflation can be damaging to the health of the economy and to the well-being...

Central banks have recently done a dreadful job of stabilizing the path of nominal expenditures. The adverse demand shock of 2008–9 led to a severe recession in the United States and Europe. Monetary policy could be greatly improved with a regime of “targeting the forecast,” or setting...

The recent financial crisis exposed serious flaws with inflation-targeting monetary policy regimes. Because of inflation fears, the Fed did not provide enough monetary stimulus in late 2008, allowing the largest decline in nominal spending since the 1930s. This demand shock intensified the...