Once individuals have adapted their expectations to the accommodative monetary policy of the monetary authority, further monetary expansion is like pushing on a string. It can only lead to high inflation, leaving unemployment unaltered. The time inconsistency nature of this problem lies in the fact that only unanticipated inflation leads to lower unemployment because it depresses real wages.
The term-loan facility that we are considering should have little stigma attached to its use, because it will be offered at the Bank's discretion at times of stress that involve more than one deposit-taking financial institution. 11 The final recommendation in the CGFS report is aimed at limiting moral hazard.