Monetary Policy and the Fed

Read this chapter to understand in more detail the monetary policy tools, process, and impacts on the U.S. economy. Review specific monetary policies and their effects from our recent history.

Problems and Controversies of Monetary Policy

Key Takeaways

Macroeconomic policy makers must contend with recognition, implementation, and impact lags.
Potential targets for macroeconomic policy include interest rates, money growth rates, and the price level or expected rates of change in the price level.
Even if a central bank is structured to be independent of political pressure, its officers are likely to be affected by such pressure.
To counteract liquidity traps or the possibility thereof, central banks have used quantitative-easing and credit-easing strategies.
No central bank can know in advance how its policies will affect the economy; the rational expectations hypothesis predicts that central bank actions will affect the money supply and the price level but not the real level of economic activity.