This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

An Introduction to US Monetary Policy

That's the title of a new paper of mine released today by the Mercatus Center. It is intended to de-mystify monetary policy in a way that the layperson can understand.  It might be useful in the classroom as well.  Here's the abstract:

This study examines the history and operation of the Federal Reserve System (“the Fed”). It explores the Fed’s origins in American economic history and emphasizes the political compromises that produced it. It seeks to provide an accessible explanation of how the Fed attempts to change the money supply and of the structural challenges it faces as it attempts to get the money supply correct.. The paper uses the framework thereby developed to examine recent monetary policy, including quantitative easing. Inflation and deflation result when the Fed creates too much or too little money, and the study discusses the causes and costs of both in some detail. The paper concludes with an examination of alternatives to central banking, including the gold standard and a system of competition in money production known as free banking.