Vincent and Carmen Reinhart present evidence that the view that modest alterations to monetary policy have vast consequences is inconsistent with theory and not supported by evidence.

As has been generally understood and underscored by Standard & Poor's downgrade of the U.S.'s AAA credit rating, elected officials were willing to push the federal government to the brink of default. This was startling proof of deep dysfunction in the political process.

Media Inquiries: Veronique Rodman202.862.4870 (vrodman@aei.org)

FOR IMMEDIATE RELEASE: October 16, 2007

AEI president Christopher DeMuth announced today that Vincent Reinhart, former director of the Federal Reserve Board's Division of Monetary Affairs, has joined the American Enterprise Institute for Public...

Legislation to raise the debt ceiling will give the government headroom to operate until 2013. But a temporary ceasefire in this fiscal war will not address the country's longer-run problems. The rating agencies are therefore justified in reconsidering America's triple-A credit rating.

The Fed gambled that the benefits of the stimulus of QE to financial markets would offset the adverse effects of oil price developments. We will live with the consequences of that judgment in coming quarters.

Chairman Bernanke can be faulted for not anticipating the severity of the global financial crisis, however he deserves some credit for helping stabilize the financial sector at a time of unprecedented instability.

Reinhart and Reinhart find that economic growth is slower in the decade following a macroeconomic disruption, and extend their results to show that a faltering of economic recovery is not uncommon after a severe financial shock-although this can often be ascribed to exogenous events.

Sudden stops and reversals in capital flows are the stuff of policymakers’ nightmares. The last 20 years of research shows that the capital-inflow dilemma is not an external problem–it is an eternal one.