Opposing Views of the Effectiveness of Monetary Policy Essay -- Econom

Opposing Views of the Effectiveness of Monetary Policy Monetary policy is a powerful governmental weapon which has historically proven that it is difficult to wield. This difficulty is one of the reasons why some economists doubt the effectiveness of monetary policy as a whole. These economists find that monetary policy is difficult to implement because of estimation problems and time lag problems, as well as cyclic effects. They also point out situations in which monetary policy may not work at all. On the other hand, some economists swear by monetary policy as one of the most influential economic tools. These economists show that controlling money supply in America is a relatively young idea, and is developing rapidly. They also attempt to show that money supply affects many variables in our economy, and that it is useful in more situations than the anti-monetary policy economists, Keynesian economists, would have us believe. To gauge the ineffectiveness of monetary policy some economists call our attention to the great depression. How could governmental monetarists allow one quarter of the country to be unemployed[1] or for one third of commercial banks to be put out of business by â€Å"bank panics?†[2] People who took part in these bank panics were not only taking out their â€Å"own† money, but were taking out possible loans for others (the amount they took out multiplied by the money multiplier) which eventually became 31% of the total money supply.[3] The economist best fit to use monetary policy would be able to tell the future, or at least provide a pretty good estimate. These estimates are very difficult when sometimes the results of policy actions are not seen for months to over a year. Corrections of these ... ...ed: Mishkin, F.S. The economics of Money, Banking, and Financial Markets. Sixth Edition. 2003. Schwartz, A.J. Money Supply. The Concise Encyclopedia of economics. The Library of economics and Liberty. Online: http://www.econlib.org/library/Enc/MoneySupply.html Meltzer, A.H. A Liquidity Trap? Online: http://www.gsia.cmu.edu/afs/andrew/gsia/meltzer/a_liquidity_trap.pdf Online: http://www.korpios.org/resurgent/Fed.htm What Role did the Fed Play in Causing the Great Depression? Ueda, K. Speech at Japan Society of Monetary economics. December, 2001. Online: http://www.boj.or.jp/en/press/koen072.htm#0202 Online: http://www.arts.unimelb.edu.au/amu/ucr/student/1997/Yee/depression.htm The Cause of the Great Depression in 1929. Online: http://www.shambhala.org/business/goldocean/causdep.html What Caused the Great Depression of the 1930’s?