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Can Monetary Policy Affect the Real Economy? The Dubious Effectiveness of Interest Rate Policy

Listed author(s):
  • Philip Arestis
  • Malcolm Sawyer

Central bankers and many economists have abandoned "activist" policies and monetarism and adopted in their place a new view of the role of monetary policy. This view draws on many of the tenets of more traditional theories of money-monetarism's emphasis inflation control and skepticism about the use of easy-money policies to permanently increase output, and the Keynesian view that the total stock of money is not an important driving force behind either inflation or unemployment-but also takes a dim view of democratic input to the policymaking process. This brief evaluates a premise subscribed to by most central bankers: that monetary policy can be effectively used to control inflation without any permanent sacrifice in the form of reduced income or job opportunities.

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File URL: http://www.levyinstitute.org/pubs/ppb71.pdf
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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_71.

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Handle: RePEc:lev:levppb:ppb_71
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  1. Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
  2. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
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