Abstract: Monetary policy is both a science and an art. The science aspect of monetary policy is not conjured out of thin air by economists but rather derived from central banks' painful trial-and-error. Unlike more complex Keynesian or monetarist theories, the Real Bills Doctrine is a simple, rudimentary theory that aligns with common intuition and is largely unproblematic in most cases. However, sticking to this theory may have been one of the significant reasons for the fatal mistakes made by the Federal Reserve in the early stages of the Great Depression. While the Taylor Rule is widely recognized, the debate surrounding one of its coefficient values has persisted for decades in the field of monetary economics. This debate has deepened economists' understanding of monetary policy, and these valuable insights, gained through trial and debate, have prevented contemporary central banks from making the same errors.
Please note that this writing is a new attempt: a significant portion of this article, including the chart, was completed with the assistance of a large language model.
