Tuesday, September 18, 2007

Words to Live By?

. Tuesday, September 18, 2007

As the Fed considers whether and how much to cut rates today, here is Ben Bernanke reflecting on the lessons to be learned from the Great Depression in an interview he gave in 2005:

Are there any lessons from the Great Depression that need to be relearned?

...The two main lessons which I think have been learned to a large extent, but always can be re-emphasized, are first that a central bank’s primary responsibility is the maintenance of price stability, to provide low and stable inflation in the medium term, to avoid sharp inflations or deflations and particularly to avoid the instability of expectations associated with an unanchored price level. The second lesson is that the financial industry is a special industry in terms of its role in macroeconomic stability. Major upheavals in the financial system can be extremely disruptive to the economy as a whole and therefore the central bank and other government institutions have a particular obligation to make sure that financial stability is preserved. (pages 65-66).

Hat tip to Mankiw.

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Words to Live By?
 
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