The Monetary Policy Model |
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Authors: | William Poole |
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Institution: | (1) Office of President, Federal Reserve Bank of St. Louis, St. Louis, MO 63166, USA |
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Abstract: | Most monetary economists today conduct their analysis
within some version of a rational expectations model. A
well-defined equilibrium in such a model requires that
the private sector understand policy goals and the policymakers'
model of the economy. An austere version of
the model, with no information asymmetries, is valid
only to a first approximation but nevertheless provides
core insights to short- and long-run monetary policy. In this model, effective policy requires clarity of policy goals
and clarity of the policy model as to how the economy
works. The central bank must enjoy sustained credibility
in the markets. Communication should focus on policy
fundamentals and the monetary authorities’ understanding
of the economy, both of which are enhanced by continued
research by monetary policy experts.
JEL Classification E5 |
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Keywords: | monetary policy Fed Federal Reserve interest rate money supply |
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