Has monetary policy become less effective?

Joseph Haslag

No 9906, Working Papers from Federal Reserve Bank of Dallas

Abstract: High-powered money has been declining relative to nominal GDP in the United States. Does the ability of monetary policy to affect aggregate activity decline as the money-income ratio falls? In this paper, I specify simple model economy, examining the effects that monetary policy actions and financial innovation would have on the equilibrium money-income ratio. The downward trend in the money-income ratio can be accounted for by increasing inflation, falling reserve requirements, or steady financial development. Whereas higher inflation and falling reserve requirements would reduce the potency of monetary policy, monetary policy's effects are invariant to financial innovation.

Keywords: Monetary policy; Monetary theory (search for similar items in EconPapers)
Date: 1999
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