What Causes Lags in Monetary Policy?

Monetary policy is a macroeconomic policy of Keynesianism in Western economics. The principle is: when aggregate demand is lower than full employment output, implement an expansionary monetary policy to stimulate aggregate demand, especially investment demand, to eliminate unemployment; when aggregate demand is higher than full employment output, implement a contractive monetary policy to Suppress aggregate demand and eliminate inflation. The "camera choice" policy has long been the main basis for Western government economic decision-making. Since the 1960s, stagflation has occurred in Western countries, that is, unemployment and inflation are concurrent. Keynes has been unable to respond to this. As a result, Keynes' economic dominance has been shaken seriously, and "camera choice" has also been criticized. Monetarism, represented by M. Friedman, believes that fiscal policy is ineffective, and the "camera-choice" monetary policy will have serious consequences for the economy due to the lag of policy effects. The only way out is to implement a Single policy rule for fixed ratio growth. Rational anticipation holds that the "camera choice" policy is subjective and arbitrary. ^[1]

Camera Choice Monetary Policy

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Monetary policy is a macroeconomic policy of Keynesianism in Western economics. The principle is: when aggregate demand is lower than full employment output, implement an expansionary monetary policy to stimulate aggregate demand, especially investment demand, to eliminate unemployment; when aggregate demand is higher than full employment output, implement a contractive monetary policy to Suppress aggregate demand and eliminate inflation. The "camera choice" policy has long been the main basis for Western government economic decision-making. Since the 1960s, stagflation has occurred in Western countries, that is, unemployment and inflation are concurrent. Keynes has been unable to respond to this. As a result, Keynes' economic dominance has been shaken seriously, and "camera choice" has also been criticized. Monetarism, represented by M. Friedman, believes that fiscal policy is ineffective, and the "camera-choice" monetary policy will have serious consequences for the economy due to the lag of policy effects. The only way out is to implement a Single policy rule for fixed ratio growth. Rational anticipation holds that the "camera choice" policy is subjective and arbitrary. ^[1]

Before the rise of the Keynesian school,

Hongru Liu, "On the Central Bank and Monetary Policy", China Finance Press, Beijing, 1986.
Rao Yuqing: "Modern Currency Banking", China Social Science Press, Beijing, 1983.