There is no magic wand

Source: EconLog
by Scott Sumner

“A recent essay by Yanis Varoufakis illustrates a frequent problem with media discussion of central bank policies: ‘Central bankers once had a single policy lever: interest rates.’ Actually, the policy lever was open market operations; interest rates were one of the variables affected by those operations. A tight money policy might raise interest rates if the liquidity effect dominated or it might reduce interest rates if the Fisher effect dominated. Changing interest rates was not a monetary policy; it was the effect of a policy.” (11/17/21)