Blog: Central Banks and "The Logic of Failure."
Studies of complex decision making may help us understand future monetary policy.
The preoccupation with inflation continues, and it should. After being a non-issue for decades, this important part of economic life has come to the forefront. FMCR has been live now for less than 8 months. Yet in that time I've discussed inflation in 42 blog entries, making the topic second only to market uncertainty at 45.
This week CPI inflation is released. While the Fed uses PCE for targeting inflation, CPI has long been the market's benchmark. Earlier in my career PCE was never discussed.
But the real issue facing the Fed and other central banks on monetary policy is future inflation. Unfortunately all of the numbers we have are past inflation with noise added. The gradualist approach to monetary policy to fight inflation is similar to a problem outlined in one of my favorite, little known books, The Logic of Failure by Dietrich Dorner.