It's probably confirmation bias but I have always enjoyed Scott Sumner's blog posts. Here is one recent example , in which he re-emphasizes his mantra "Never reason from a price change." Instead, try to figure out what caused the price change. And in this blog post he also emphasizes, "never reason from an interest rate change," but instead ask what caused the interest rate change. Scott's salient paragraph,
The market monetarist view is that easy money leads to higher inflation, and easy money sometimes lowers interest rates and sometimes raises them. Any reductions in interest rates tend to occur in the short run, whereas higher interest rates tend to result in the long run. In addition, it's more useful to think in terms of causation as going from inflation to interest rates, rather than interest rates to inflation.
The way I used to address this issue when I taught money-macro was to use this true-false exam question as an illustration:
[T/F/Explain] An increase in the money supply causes interest rates to fall.
[Answer] It all depends (That's always a good economist's answer!).
- If the increase in the money supply is unanticipated (or more than is anticipated), there will be a short-term liquidity effect. The supply of lendable funds will have increased more than expected, putting downward pressure on interest rates.
- If the increase in the money supply is believed to be longer-term, people will experience and then (through adaptive expectations) come to expect higher rates of inflation.
- Through the Fisher Effect, when people in general come to expect higher rates of inflation, they will drive up the nominal interest rate.
Most students seemed to understand this material, at least for the exams. Whether it stayed with them is another question altogether.