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How important is money in the conduct of monetary policy?
| Author(s): | Woodford, Michael |
| Title: | How important is money in the conduct of monetary policy? |
| Issue Date: | 2007-Jul-31 |
| Series no.: | Discussion Paper 0607-16 |
| Bookmark as: | http://hdl.handle.net/10022/AC:P:433 |
| Abstract: | 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. |
| Collection(s): | Economics Discussion Papers
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