The Federal Reserve's framework for setting and communicating monetary policy came under the spotlight last week. It is understandable given the persistently high level of unemployment that economists are looking for ways to make monetary policy more effective. But the uncomfortable truth is that monetary policy simply isn't as effective in a liquidity trap. The onus should be on fiscal policy to close the nominal GDP shortfall. The problem is that fiscal policy appears to have reached its limits too, at least as far as the politicians are concerned.
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