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Does Monetary Policy Have Long-Run Effects?

Author

Listed:
  • Òscar Jordà
  • Sanjay R. Singh
  • Alan M. Taylor

Abstract

Monetary policy is often regarded as having only temporary effects on the economy, moderating the expansions and contractions that make up the business cycle. However, it is possible for monetary policy to affect an economy’s long-run trajectory. Analyzing cross-country data for a set of large national economies since 1900 suggests that tight monetary policy can reduce potential output even after a decade. By contrast, loose monetary policy does not appear to raise long-run potential. Such effects may be important for assessing the preferred stance of monetary policy.

Suggested Citation

  • Òscar Jordà & Sanjay R. Singh & Alan M. Taylor, 2023. "Does Monetary Policy Have Long-Run Effects?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(23), pages 1-6, September.
    • Handle: RePEc:fip:fedfel:96692
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    References listed on IDEAS

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    1. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June.
    2. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
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    1. Amanda Mavundla & Simiso Msomi & Malibongwe Cyprian Nyati, 2025. "Exploring the Nature and Dynamics of Monetary–Fiscal Policy Interactions in South Africa," Risks, MDPI, vol. 13(10), pages 1-19, September.

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