How Important is Money in the Conduct of Monetary Policy?

Michael Woodford ()

No 6211, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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. (Here I give particular attention to the implications of ``two-pillar Phillips curves'' of the kind proposed by Gerlach (2004).) 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 provide a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy.

Keywords: monetarism; monetary targeting; new Keynesian model; two-pillar strategy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-03
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Related works:
Working Paper: How Important is Money in the Conduct of Monetary Policy? (2006)
Working Paper: How Important is Money in the Conduct of Monetary Policy? (2007)
Working Paper: How Important is Money in the Conduct of Monetary Policy? (2007)
Working Paper: How Important is Money in the Conduct of Monetary Policy? (2007)
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