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Monetary Policy

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In simple textbook models of the aggregate economy, monetary policy is either expansionary, contractionary, or neutral with respect to the real economy and the price level, depending on the pace at which the money supply expands relative to demand. Making use of this framework, however, requires that supply and demand for money have a stable relationship with economic activity and prices. Unfortunately, experience demonstrates that these relationships lack the stability needed to transform the textbook model into a dependable, real-time policy tool.

Suggested citation: "Monetary Policy," Federal Reserve Bank of Cleveland, Economic Trends, no. 02-04, pp. 04-05, 04.01.2002.

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