Targeting Inflation, The Effects of Monetary Policy on the CPI and Its Housing Component
The targets for monetary policy adopted by the Fed in recent years have not proven to be closely correlated with inflation, leading some theorists and policymakers to advocate the use of a price index, such as the consumer price index (CPI), as both the target and the goal of monetary policy. Executive Director Dimitri B. Papadimitriou and Research Associate L. Randall Wray show that such a choice is not wise because the CPI does not accurately reflect market-caused price increases and is not under the control of monetary policy. Their analysis extends beyond that of recent reports to show how and why the transmission mechanisms through which monetary policy is thought to affect the CPI are tenuous at best. The authors focus on the housing component of the CPI to illustrate their point. They conclude that those components of the CPI that to affect have been declining in importance, meaning that to produce a given reduction in the overall rate of inflation will require that monetary policy have an increasingly larger impact on an ever-diminishing portion of the consumer basket. Therefore, careful reconsideration of an alternative ultimate target, such as the rate of economic growth or the unemployment rate, is warranted.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wynne, Mark A. & Sigalla, Fiona, 1993.
"A survey of measurement biases in price indexes,"
9340, Federal Reserve Bank of Dallas.
- Daniel L. Thornton, 1988. "The borrowed-reserves operating procedures: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 30-54.
When requesting a correction, please mention this item's handle: RePEc:lev:levppb:ppb_27. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.