The Pressures on Monetary Policy: An Overview
In the past three decades a tremendous change has occurred in the way monetary policymakers are viewed in the scholarly economics journals, as well as in some of the textbooks in money and banking and macroeconomic theory. During the 1960s idealistic monetary policymakers were typically envisioned as choosing a socially consensual “best” point on a stable, negatively-sloped Phillips Curve. After the rational expectations revolution of the 1970s, monetary policymakers came to be seen, somewhat more cynically, as pursuing gains in employment and output and reductions in interest rates that are short-lived and can only be attained at the expense of permanently higher rates of inflation. If gains in output and employment and reductions in interest rates are only transitory and have adverse inflationary consequences, why should monetary policymakers pursue them? Modern researchers realize that policymakers pursue such socially suboptimal goals because they come under a considerable degree of political and private pressure.
KeywordsMonetary Policy Federal Reserve Executive Branch Safe Index Federal Reserve System
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