Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org

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It's February 11, 2009, and my guest today is Alan Meltzer, Professor of Political Economy

at Carnegie Mellon University and a visiting professor at the American Enterprise Institute.

He's the author of a history of the Federal Reserve, which volume 1 taking up to 1951 is

in print. Volume 2 taking us up to 1986 with some thoughts on the current situation. We expect

to be published this fall, or somewhere around there. Alan, welcome back to Econ Talk.

Thank you. Nice to talk to you, Russ.

So our topic for today is monetary policy writ large, but in particular in the last

few months, there are a lot of mysteries there for those of us who are not experts, and

I'm hoping you can help us understand the situation better. I'm going to start off with

a seemingly very simple question. What is going on? Monetary policy appears to be enormously

expansionary by some measures. Is that true? What measures should those of us who are not

on the inside be looking at?

Well, first, it certainly is enormously expansive. I don't think there's never been a period

quite like this in terms of the growth of the monetary aggregate to supply of reserves,

the purchase of central banks in developed countries never purchase illiquid assets, but

the Fed has been buying them quite a large degree. So in my opinion, if it has a terrible

policy, it does have to do things about the current crisis, but it doesn't have to completely

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