Monetary Policy is Not a Bridge

It’s a Shock Absorber

Photo by Paul O’ Rear used under Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0) license

The Disagreement

Mainstream economic theory tends to treat monetary policy as a bridge or a ramp. Raising interest rates can cause an arbitrary amount of deflation, in this view. But if you understand the mechanics of interest rates, this makes little sense.

Background