Published Friday, April 20, 2007 by Frank Shostak
In their various speeches Fed policy makers have been emphasizing the importance of price stability for economic growth, writes Frank Shostak. The policy of price stability is therefore a policy of stabilizing an arbitrary price index, which supposedly represents the price level. The main tool that the Fed employs to influence the general price level is the manipulation of the federal funds interest rate — and hence the interest rate structure — which falsifies the key signal for capital allocation. This causes businesses to overinvest in tools and machinery and underinvest in the production of non-capital goods.
(Original Text)
Does Fed Transparency Fuel Growth? (1.84 MB)