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Tuesday, September 27, 2011

Kenyas Weakening Shilling

A quick aside: I'm obviously of the opinion that monetary policy can do much more to boost recovery, and I agree that the central bank often (though not always) moves last—that is, it has the ability to cancel impose price ceilings on commodity prices to tame the spiraling depreciation of the shilling because of high cost of imports. it sees as unnecessary.it's difficult to conclude that monetary policy generally pulls against fiscal stimulus in order to provide a constant total level of desired output that will counter the deficit in the balance of payment. The big drop in government support for the economy in the second half of 2010 was not a shock to anyone, and yet the treasury resisted stepping up to offset the end of fiscal stimulus until it became clear that deflation was a real threat. If the treausry were credibly targeting nominal output, there might be a case for leaving discretionary fiscal policy out of the mix. Given the who-knows-what-they're-doing strategy currently on offer from the treasury, it makes complete sense for the government to do what it can to support recovery. That's a point libertarian-minded critics of monetary stimulus ought to note; when the Fed does too little, the pressure on the government to spend more will be too great too resist.

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