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Fed, ECB and the Brave New World of Monetary Policy

NYU Stern School of Business Professor Brad Hintz and Lakshman Achuthan, co-founder at Economic Cycle Research Institute, discuss global central banks in unchartered territory and how economics impact monetary policy. They speak on "Bloomberg Surveillance." (Source: Bloomberg)

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