Central banks have unlimited ammunition – if they chose to use it

Financial Review has the article Central banks have unlimited ammunition – if they chose to use it.

It is time to fundamentally rethink the conventional macroeconomic policy framework in preparation for future economic downturns. Monetary and fiscal policy need to be better aligned and coordinated so that they can be mobilised quickly and effectively when needed, and in the right combination. MMT can play a useful role in that debate. But economists on both sides have to put down their rhetorical pitchforks first.

If you read the whole article, you will see much of my own view. The article reminds us that the restrictions that Congress has put on the Fed are an unhelpful obstruction to the full use of the fiscal policy that would be available to the government if there had been no such restrictions.

It just occurred to me that saying that central banks have unlimited ammunition leaves the wrong impression. Central governments have unlimited ammunition, but the ammunition is not completely in the hands of the central banks. Central banks are a part of the central government, but they don’t have some of the powers that the rest of the government has.

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