Monetary Non-Neutrality

I wrote a piece for the C.D. Howe Institute in April 2021, making the case that the Bank of Canada should keep the then-existing agreement with the government in place, without amendments, when the time came to renew the agreement. So, the time has come and, indeed, the new agreement is more or less the same as the old one, in terms of the specifics. In practice, this could make little difference for actual Bank policy actions.

I saw an article, “The End of Friedmanomics,” referenced by Paul Krugman on Twitter, which attempts to make the case that Milton Friedman was not only a terrible economist, but an atrocious human being, and that his ideas have been appropriately tossed in the ash heap of history, the compost pile of odd notions, the purgatory of horrible mistakes, or wherever wrongheaded and discarded economics goes to rest. I didn’t quite know what to think.

[This is long enough that it exceeded Substack’s email length limit, so I’ve split it in two parts. Part II here.] Given recent events in the US overnight credit market, this is a good time to re-assess the Fed’s current approach to implementing monetary policy. This is a topic that some people think is just a matter of some technical details, but I think it is much more important than that.