Two reasons why money and credit may be useful in monetary policy
By: Lawrence Christiano, Roberto Motto, Massimo Rostagno.
Contributors: Motto, Roberto.; Rostagno, Massimo.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13502.; Working paper series (National Bureau of Economic Research) -- working paper no. 13502.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 38
Subjects: Monetary policy -- Econometric models; Money; Credit
Description: We describe two examples which illustrate in different ways how money and credit may be useful in the conduct of monetary policy. Our first example shows how monitoring money and credit can help anchor private sector expectations about inflation. Our second example shows that a monetary policy that focuses too narrowly on inflation may inadvertently contribute to welfare-reducing boom-bust cycles in real and financial variables. The example is of some interest because it is based on a monetary policy rule fit to aggregate data. We show that a policy of monetary tightening when credit growth is strong can mitigate the problems identified in our second example.
Notes: "October 2007"

Includes bibliographical references (p. 33-38).

Also available in PDF from the NBER world wide web site (www.nber.org).