Secondly, to say monetary policy is a blunt instrument begs the question: where are the sharp instruments? It is not obvious that there are all that many. People mention supply side reforms of various kinds and unquestionably these have been extremely important over the years. To the extent that more can be done, that is all to the good for Australians’ standard of living.
But they are long term. It is hard to deploy them in a hurry. And many of them are very general – “blunt” even – rather than specific. Many people will appeal, perhaps not unreasonably, to the possibility of using fiscal policy to counter inflation pressure. For some time now, fiscal policy has not been actively deployed to manage the business cycle.