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BPEA Article

Institutional Change and the Efficacy of Monetary Policy

Abstract

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.

Author

Commenters

Alan S. Blinder

Gordon S. Gentschler Memorial Professor of Economics and Public Affairs - Princeton University

Visiting Fellow, Economic Studies - The Brookings Institution

D

David H. Romer

Herman Royer Professor of Political Economy - University of California, Berkeley

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