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Article: What monetary policy can and cannot do: based on a speech presented by President Santomero to the National Association for Business Economics, New York, September 10, 2001. (The Third Dimension).(Anthony M. Santomero)
- Article from:
- Business Review (Federal Reserve Bank of Philadelphia)
- Article date:
- March 22, 2002
- Author:
CopyrightCOPYRIGHT 2002 Federal Reserve Bank of Philadelphia. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Most Fed policymakers -- indeed, most professional economists today -- would agree that (1) the goal of monetary policy is to help create an economic environment that fosters maximum sustainable growth, and (2) the most important contribution the Fed can make to that environment is to provide price stability.
Behind this philosophy of appropriate monetary policy goals lie some important economic principles on which, again, I think there is broad agreement.
The first economic principle is that price stability is crucial to a well-functioning market economy. Prices are signals to market participants. A stable overall price level allows people to clearly ...