How the World Achieved Consensus on Monetary Policy

44 Pages Posted: 5 Nov 2007 Last revised: 11 Aug 2010

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2007

Abstract

This article tells how the world achieved a working consensus on the core principles of monetary policy. The story begins with the muddled state of affairs in the late 1970s. It then asks: How did Federal Reserve policy produce an understanding of the practical principles of monetary policy? How did formal institutional support abroad for targeting low inflation follow from an international acceptance of these ideas? And how did a consensus theoretical model develop in academia? The article tells how the modern theoretical consensus known as the New Neoclassical Synthesis (aka, the New Keynesian model) reinforces key advances: the priority for price stability, the targeting of core rather than headline inflation, the importance of credibility for low inflation, and preemptive interest rate policy supported by transparent objectives and procedures. The conclusion identifies important practical issues that remain to be explored in theory.

Suggested Citation

Goodfriend, Marvin, How the World Achieved Consensus on Monetary Policy (November 2007). NBER Working Paper No. w13580. Available at SSRN: https://ssrn.com/abstract=1027199

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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