Working Paper: NBER ID: w13566
Authors: Frederic S. Mishkin
Abstract: This paper reviews the progress that the science of monetary policy has made over recent decades. This progress has significantly expanded the degree to which the practice of monetary policy reflects the application of a core set of "scientific principles". However, there remains, and will likely always remain, elements of art in the conduct of monetary policy: in other words, substantial judgment will always be needed to achieve desirable outcomes on both the inflation and employment fronts. However, as case studies discussed here suggest, even through art will always be a key element in the conduct of monetary policy, the more it is informed by good science, the more successful monetary policy will be.
Keywords: monetary policy; science; economics
JEL Codes: E2; E44; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| advancements in the science of monetary policy (E52) | lower inflation rates (E31) |
| advancements in the science of monetary policy (E52) | reduced output volatility (E39) |
| poor monetary policy decisions (E49) | high inflation (E31) |
| monetary policy (E52) | inflation outcomes (E31) |
| attempts to exploit tradeoff between unemployment and inflation (J64) | higher inflation (E31) |
| managing expectations (D84) | economic activity (E20) |