How Important is Money in the Conduct of Monetary Policy?

Michael Woodford ()

No 1104, Working Papers from Queen's University, Department of Economics

Abstract: This paper was presented as the 2006 W.A. Mackintosh Lecture at Queen's University. 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 long­run 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 (2003).) 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: inflation; Phillips curve; monetary policy (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2006-10
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http://www.econ.queensu.ca/working_papers/papers/qed_wp_1104.pdf First version 2006 (application/pdf)

Related works:
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)
Working Paper: How Important is Money in the Conduct of Monetary Policy? (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:qed:wpaper:1104

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