Why the monetary policy framework in advanced countries needs fundamental reform

INET posted this Working Paper on 14 August 2023. It is argued that monetary policy should be guided much more by financial sector developments (credit and debt) and much less by near term targets for inflation.  This argument is first supported by an historical review of the negative outcomes produced by the current policy framework. A second level of support is provided through questioning the theoretical arguments underpinning the current framework. The search for an alternative monetary policy framework would begin with the observation that an economy is a complex, adaptive system like many others in nature and society. From this perspective, arguments for introducing a “narrow money” regime need more attention than they have thus far been given.