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Avoiding significant monetary policy mistakes.(policy of Federal Open Market Committee)
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With low inflation now a reality, the Federal Open Market Committee (FOMC) has achieved one of its primary objectives. Nevertheless, some have asked if this result is a product more of good fortune than of good policy. (See, for instance, Ihrig and Marquez 2003.) In this article, we consider a related issue of whether the FOMC policy framework is sound or, alternatively, it was rescued by good luck. In particular, we ask, Do the current policy procedures of the FOMC lead to too much risk of a bad inflation outcome? We argue that they do, and we then propose a type of ...
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