Monetary policy: Why money matters (and interest rates don’t)

Thornton, Daniel

Monetary policy: Why money matters (and interest rates don’t)

Journal of Macroeconomics, 2014, vol. 40, issue C, 202-213

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 suggest that money is irrelevant for monetary policy because central banks affect economic activity and inflation by (i) controlling a very short-term nominal interest rate and (ii) influencing financial market participants’ expectation of the future policy rate. I offer an alternative perspective: Money is essential for monetary policy because it is essential for controlling the price level, and the monetary authority’s ability to control interest rates is greatly exaggerated.

Keywords: Money; Medium of exchange; Monetary policy; Federal funds target; Structure of interest rates; Inflation (search for similar items in EconPapers)
JEL-codes: E41 E43 E52 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Monetary policy: why money matters, and interest rates don’t (2012)
Working Paper: Monetary policy: why money matters and interest rates don't (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:202-213

DOI: 10.1016/j.jmacro.2013.12.005

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