November, 2014

The Futures of Monetary Stabilization Policy

  • Robert Cavender

    Visiting Assistant Professor of Economics, Gettysburg College
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In deciding monetary policy, the Federal Reserve of the United States faces two major sets of problems, namely, those having to do with precision and those having to do with time-inconsistency. Sumner offers what he believes to be a solution to both the precision and the time-inconsistency problems in the form of a CPI futures market created and run by the Fed. Garrison and White disagree, countering that this would in fact be a non-solution. The purpose of this paper is to suggest an alternative to Sumner's proposal that avoids the issues outlined by Garrison and White that ultimately allows the Fed to solve both sets of problems as Sumner originally intended.

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