Research
BPEA | 1989 No. 11989, No. 1
DURING THE 1980s monetary policy emerged as the sole tool of U.S. stabilization policy when U.S. fiscal policy got caught up in an ideological battle over the appropriate size of government. Despite the inherent risks of reliance on a single tool to manage a multiplicity of domestic and external economic objectives, the monetary authorities have been highly successful over the past six years. There is, however, substantial uncertainty about the sustainability of the current policy mix. Financial markets, in particular, have been highly volatile and susceptible to sharp reactions to every rumor of potential change in Federal Reserve policy.
