سیاست های پولی: دلیل اهمیت پول (نرخ بهره ای که انجام نمی شود)

Since the late 1980s the Fed has implemented monetary policy by adjusting its target for the overnight federal funds rate. Money’s role in monetary policy has been tertiary, at best. Indeed, several influential economists suggest that money is irrelevant for monetary policy because central banks affect economic activity and inflation by (i) controlling a very short-term nominal interest rate and (ii) influencing financial market participants’ expectation of the future policy rate. I offer an alternative perspective: Money is essential for monetary policy because it is essential for controlling the price level, and the monetary authority’s ability to control interest rates is greatly exaggerated.

Today “monetary policy” might be more aptly named “interest rate policy” because policymakers pay virtually no attention to money and focus almost exclusively on interest rates.1 A prominent monetary/macroeconomic economist, Woodford (2000), has argued that money is irrelevant for monetary policy: “even if the demand for base money for use in facilitating transactions is largely or even completely eliminated, monetary policy should continue to be effective” because central banks could continue to control “a short-term nominal interest rate…through the use of a ‘channel’ system…like those currently used in Canada, Australia and New Zealand.”2 In a similar vein, Svensson (2008) suggests that over the past 50 years monetary theorists and policymakers have learned that “monetary aggregates matter little, or even not at all, for monetary policy.”3 Given the prominence of these economists and the lack of attention to money by central bankers around the world, one might think it foolish to assert that money is essential for economic activity and for determining the price level. It will no doubt seem even more foolish to suggest that monetary policymakers’ ability to influence interest rates, especially those that matter for the efficacy of monetary policy, is greatly exaggerated. This paper is an attempt to motivate discussion and debate about the role of money in monetary policy. It is useful to have such debates, particularly now because the Federal Reserve and most other central banks ignore money and are pursuing unconventional monetary policies in an effort to enhance the effectiveness of their interest rate policies. Challenging orthodoxy is useful even if it serves only to solidify one’s belief in it. The remainder of the paper is as follows. Section 2 argues that money is essential for economic activity and critical for determining the price level and discusses several reasons for money’s irrelevance in modern monetary theory and policymaking. Section 3 analyzes several reasons to be skeptical of the extent to which the Federal Reserve affects interest rates. Section 4 concludes.

The previous sections have argued that (i) money exists for the simple reason that it is the most efficient method of achieving final payment in exchange; (ii) the existence of money is essential for the development of goods and financial markets; (iii) a marked deterioration in the money-payment system would “cripple” economic activity, as Greenspan’s opening quote indicates; and (iv) the profession has yet to develop a model useful for formulating and understanding monetary policy that reflects the essential role that money plays in the economy.34 For all of these reasons, economists and policymakers have coalesced around a model where money is not explicitly included and, arguably, is not essential: Monetary policy works primarily, if not exclusively, through the interest rate channel, that is, policymakers control the overnight policy rate, which affects the entire structure of risk-free and risky interest rates, which in turn affects aggregate demand, economic activity, and inflation. I argue that money matters for monetary policy because money is essential for economic activity and for the determination of the price level. Unfortunately, money’s essential role is not adequately reflected in modern monetary theory and policy. I attribute this to (i) the fact that the more sophisticated financial markets become the less obvious it is that money is essential, (ii) the lack of a strong statistically significant relationship between monetary aggregates and economic activity or inflation, and (iii) an exaggerated belief in the ability of the Fed to control interest rates. My analysis of the Fed’s actions and the role of the federal funds markets suggests that the Fed’s ability to control interest rates is exaggerated for the simple reason that historically the effect of policy actions on the total supply of credit has been too small to have a significant effect on the level of the structure of interest rates. The relative inability to influence yields more generally is illustrated by the fact that the marked improvement in the relationship between the federal funds rate and the FOMC’s funds rate target since the late 1980s has been accompanied by marked deterioration in the relationship between the funds rate and longer-term Treasury yields. The analysis suggests that the efficacy of monetary policy for countercyclical stabilization policy is much less effective than is commonly believed. Nevertheless, money is essential for controlling the price level. Consequently, if policymakers conduct an overly aggressive monetary policy, they run the risk of missing their inflation objective.