The Great Moderation Era
The Great Moderation era lasted from the mid-1980s until 2003, when the Federal Open Market Committee (FOMC) followed the method of learning by doing. The degree of employment or unemployment, as well as the inflation rate, supplied pertinent input on the subject (Garrison, 2009). The essay will concentrate on what has changed since then, the applicability of the concepts provided, and potential recommendations based on Garrison's article "Interest Rate Targeting Throughout the Great Moderation: A Reappraisal."
The Predicament and Response
The gist of the situation stemmed from the overall monetary segment's indebtedness and illiquidity. The response required needed to be as substantive as possible based on the in-depth understanding of the predicament and enthusiasm to track from side to side the formal transformations. The key issues were on the ability or inability of the federal administration to preference on the appropriate interest rate target and decentralization and centralization of the whole business of money creation (Garrison, 2009).
Taylor's Rule and Learning by Doing Strategy
The principle used was based on Taylor's Rule: the reliance on the inflation and unemployment state as the indicator of macroeconomic condition of the general economy. The initial goal of the principle was to describe the past policy moves taken by the government, but it was adopted as the prescription. Consequently, it became the baseline of the learning by doing strategy for the Federal Reserve (Luther & McElyea, 2017).
Decentralization vs. Centralization
The Taylor's Rule allows for the fundamental natural rate of interest (decentralization): interest determined by the market, emergence from the interaction between the lenders and borrowers. In contrast, centralization puts the natural rate in the eclipse. Legislative intrusions which invalidate the market contrivances with the aim of achieving market social goals geared towards perverse consequences (Luther & McElyea, 2017).
Conclusion
In conclusion, the era of great moderation characterized by the learning by doing strategy was phenomenal in the determination of the interest rate targeting. The principle developed during this period is fundamental even in the present economy: natural interest rate decision. As the economist, I will recommend the improvement of the current state of the economy to accommodate the principle equally. This can get done by the adoption of the appropriate monetary and fiscal policies that can accommodate the principle.
References
Garrison, R. W. (2009). Interest-rate targeting during the great moderation: a reappraisal. Cato
Journal, 29(1), 187-200.
Luther, W. J., & McElyea, J. P. (2017). Austrian Macroeconomics in Search of its Uniqueness.
Retrieved August 7, 2017 from https://ssrn.com/abstract=2998919
