Skip to main content Skip to main content
SHARE   Share on Twitter Share on Facebook Share on LinkedIn Email

Monetary Policy: Why Money Matters, and Interest Rates Don’t

Since the late 1980s the Fed has implemented monetary policy by adjusting its target for the overnight federal funds rate. Money’s role in monetary policy has been tertiary, at best. Indeed, several influential economists suggest that money is irrelevant for monetary policy: Central banks effect economic activity and inflation by a) controlling a very short-term nominal interest rate and b) by influencing financial market participants’ expectation of the future policy rate. I offer an alternative perspective: namely, that money is essential for the central bank’s control over the price level and that the monetary authority’s ability to control interest rates is greatly exaggerated.

Read Full Text

Subscribe to our newsletter

Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top