Monetary policy: why money matters, and interest rates don’t

Daniel Thornton

No 2012-020, Working Papers from Federal Reserve Bank of St. Louis

Abstract: 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 have suggested that money is irrelevant for monetary policy. They suggest that central banks can control inflation by (i) controlling a very short-term nominal interest rate and (ii) influencing financial market participants? expectation of the future policy rate in order to exert greater control over longer-term rates. 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 control over interest rates is exaggerated.

Keywords: Monetary policy; Money; Federal funds rate (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Monetary policy: Why money matters (and interest rates don’t) (2014)
Working Paper: Monetary policy: why money matters and interest rates don't (2008)
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DOI: 10.20955/wp.2012.020

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