A Fine Time for Monetary Policy?

Federal Reserve Bank of Minneapolis
Publication Type:
Journal Article
Federal Reserve Bank of Minneapolis Quarterly Review, 1995, 19 (1), pp. 18 - 31
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Almost everyone would agree--even we in the Federal Reserve System--that monetary policy can be improved. But improving it requires accurate empirical descriptions of the current policy and the relationship between that policy and the economic variables policymakers care about. With those descriptions, we could, conceivably, predict how economic outcomes would change under alternative policies and hence find policies that lead to better economic outcomes. The first requirement of this policymaking problem is policy identification, and it is the focus of this study. Policy identification entails a specification of the instrument the Federal Reserve controls and a description of how that instrument is set based on information available when a policy decision is made. Because policy identification is a crucial step in the search for improved monetary policy, it has received much attention in the literature.
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