Editor's Note.

• Author: Dorn, J.A.

This issue of the Cato Journal features papers from Cato's 34th Annual Monetary Conference, "Central Banks and Financial Turmoil," which was held in Washington on November 17, 2016. The conference, hosted by Cato's Center for Monetary and Financial Alternatives and generously supported by a grant from the George Edward Durell Foundation, brought together leading scholars and policymakers to examine the link between unconventional monetary policy and financial fragility. History has shown that monetary activism is a chief cause of financial booms and busts. The Fed's unconventional monetary policies have distorted interest rates and asset prices, misallocated credit, encouraged risk taking, increased leverage, penalized savers, and increased uncertainty--all of which have had a negative effect on productive investment, innovation, and growth. Any short-term benefits of near-zero interest rates, quantitative easing, forward guidance, and increased regulation must be weighed against those costs.

Unconventional monetary policy has shifted attention from the long-run objectives of price stability and stable growth of money and credit to keeping short-run interest rates near zero and maintaining the Fed's bloated balance sheet. The failure of the Fed and other central banks to create robust economic growth following the Great Recession should not be a surprise: "monetary stimulus" cannot generate sustainable real economic growth. Zero or negative interest rates and large-scale asset purchases have created severe distortions in asset markets by underpricing risk and inflating asset prices. When rates...