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What Does Monetary Policy Do?

1996; Volume: 1996; Issue: 2 Linguagem: Inglês

10.2307/2534619

1533-4465

Eric M. Leeper, Christopher A. Sims, Tao Zha, Robert E. Hall, Ben Bernanke,

Economic Theory and Policy

THERE IS A long tradition in monetary economics of searching for a single policy variable-perhaps a monetary aggregate, perhaps an interest rate-that is more or less controlled by policy and stably related to economic activity.Whether the variable is conceived of as an indicator of policy or a measure of policy stance, correlations between the variable and macroeconomic time series are taken to reflect the effects of monetary policy.Conditions for the existence of such a variable are stringent.Essentially, policy choices must evolve autonomously, independent of economic conditions.Even the harshest critics of monetary authorities would not maintain that policy decisions are unrelated to the economy.In this paper we extend a line of work that builds on a venerable economic tradition to emphasize the need to specify and estimate behavioral relationships for policy.The estimated relationships separate the regular response of policy to the economy from the response of the economy to policy, producing a more accurate measure of the effects of policy changes.The views expressed here are not necessarily those of the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of Atlanta.The authors would like to acknowledge what they have learned about the implementation of monetary policy from conversations with Lois Berthaume, Will Roberds, and Mary Rosenbaum of the Federal Reserve Bank of Atlanta, Charles Steindel of the