> Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession.
> The second thing to know is that well-functioning central banks can offset such demand shocks to a considerable degree — or even prevent them from arising in the first place. The bank can engage in complex financial transactions or simply print more currency to stabilize nominal demand and restore some measure of order.
Is it that hard to say “we think wages among the working class are too high so the central bank depreciates the currency”?
> The second thing to know is that well-functioning central banks can offset such demand shocks to a considerable degree — or even prevent them from arising in the first place. The bank can engage in complex financial transactions or simply print more currency to stabilize nominal demand and restore some measure of order.
Is it that hard to say “we think wages among the working class are too high so the central bank depreciates the currency”?