It's an important question, since what the Fed gives, the Fed can take away, either through mistakes or changes in inflation-fighting goals. Public policy is transitory, private-sector progress less so. And we can thank ''progress'' rather than ''policy'' for this particular good news, argue James Kahn of the New York Fed along with Dr. McConnell and Dr. Perez Quiros in a paper presented at the recent meetings of the American Economic Association in New Orleans. The researchers don't deny that good policy is important. But their work demonstrates that private-sector changes in organization and technology ''may be as important, or even more important, than policy,'' Dr. Kahn says.
Monetary policy affects the whole economy, including investment and consumption.
If Fed decisions had reduced the economy's volatility, every sector would be affected, and the change would definitely show up in sales fluctuations. That's not what the data show. And production levels have stabilized much more than sales, which have just moderated a little bit. But historically their production was so wildly volatile that it had a disproportionate effect on the fluctuations of total national income. That changed in the 1980's.