So, monetary policy is not a cure-all. It has a specific purpose, namely to influence demand in the economy so as to achieve the Fed's twin mandates of price stability and full employment. And that is ALL it should be expected to do. But that doesn't make it useless, as this tweet from Ralph Musgrave suggests:

As academics (and former academics) like to say, more research on this issue is needed. But the early returns don't favor the idea that central banks should significantly change their rate-setting policies to mitigate risks to financial stability.

....Maybe we should stop believing in the idea that central bankers can steer the economy in certain directions and fix all of the world’s problems.

Effective financial oversight is not perfect by any means, but it is probably the best tool we have for maintaining a stable financial system. In their efforts to promote financial stability, central banks should focus their efforts on improving their supervisory, regulatory, and macroprudential policy tools.

No, Ralph, Ben never said any such thing. On the contrary, he said that monetary policy over the last few years had reduced unemployment and created recovery.Ben acknowledges that there might be a role for monetary policy in financial stability, but expresses concern that the costs may outweigh the benefits. He cites the experience of Sweden in 2010-11, which hiked rates to take heat out of the housing market despite poor economic indicators and ended up squashing economic growth and tipping the country into outright deflation. Ben observes that current research, though limited, does not support the idea that monetary policy should be used to address financial stability concerns:However, the limited remit of monetary policy does not necessarily mean that Janet Yellen's commitment to financial stability is undermined, as Cullen seems to suggest. Macroprudential measures are also part of the central bank's toolkit. They are as yet underdeveloped. untried and their effects are to some degree unknown: as Richard Sharp of the Bank of England's Financial Policy Committee explained in June 2014, central banks are engaging in "an experiment in macroprudential management". But the fact that these measures are experimental does not mean they are useless. The Bank of England successfully used macroprudential tightening in June 2014 to take some of the heat out of London's prime residential housing market. It remains to be seen how effective macroprudential measures will be on future occasions, and what their unintended consequences might be.But Cullen goes on to make an important and far-reaching point:Belief in central bank omnipotence has led the world to dump all responsibility for generating economic recovery and preventing further crises onto the shoulders of central bankers. Belief in the uselessness of fiscal policy has encouraged central bankers to accept that burden even when it was clearly too great for them to bear alone. And belief in the evils of deficit spending and sovereign debt has led fiscal authorities to make central bankers' job even more difficult by engaging in fiscal tightening when their economies are already on the floor. Though central bankers hardly deserve our sympathy. They have actively encouraged the denigration of fiscal policy and reification of monetary policy. " Whatsoever a man soweth , that shall he also reap...."Unlike Ralph, I do not think monetary policy is powerless: but neither do I think it can single-handedly generate economic growth when fiscal authorities are determinedly squeezing demand out of the economy with tax rises and spending cuts.Cullen calls for greater use of other tools - such as "regulatory changes". Err, these wouldn't in any way be related to the measures that Ben talks about, would they? Ben seems to think so:But Cullen goes further. He calls for tax reforms and infrastructure investment. We can disagree over the details, but in principle this is eminently sensible. When the economy is on the floor, the public sector should invest in the infrastructure that will support business in the future, and make fiscal reforms complementing, rather than counteracting, the central bank's efforts to support demand and encourage business investment. What a pity that governments around the world have done the exact opposite, hiking taxes and cutting investment.Artificial separation of fiscal and monetary policy cripples policymaking. It is time for monetary and fiscal policymakers to acknowledge their joint role in generating economic growth and preventing future crises.