Economists generally accept that monetary policy determines the rate of inflation, but they continue to debate whether it can affect real variables, such as the level of employment and the rate of economic growth. During the early 1960s, many policy makers believed they could routinely exploit a stable trade-off between inflation and unemployment. This trade-off, summarized by the so-called Phillips curve, implied that monetary policy could permanently lower unemployment by generating higher inflation.
Suggested citation: “Monetary Policy,” Federal Reserve Bank of Cleveland, Economic Trends, no. 96-02, pp. 02-04, 02.01.1996.