How Important Is Money in the Conduct of Monetary Policy?

I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Secon...

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Veröffentlicht in:Journal of money, credit and banking credit and banking, 2008-12, Vol.40 (8), p.1561-1598
1. Verfasser: WOODFORD, MICHAEL
Format: Artikel
Sprache:eng
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Zusammenfassung:I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Second, I consider whether models of inflation determination with no role for money are incomplete, or inconsistent with elementary economic principles. Third, I consider the implications for monetary policy strategy of the empirical evidence for a long-run relationship between money growth and inflation. And fourth, I consider reasons why a monetary policy strategy based solely on short-run inflation forecasts derived from a Phillips curve may not be a reliable way of controlling inflation. I argue that none of these considerations provides a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy.
ISSN:0022-2879
1538-4616
DOI:10.1111/j.1538-4616.2008.00175.x