##m focuses less on the structure of the economy and short - run dynamics and more on longer - run conclusions, such as the long - run relationship between money and output and money and inflation. this focus reflects, in part, a skepticism about our ability to understand or to adequately quantify the structural linkages and dynamics. for this reason, monetarists tend to prefer reduced - form equations or vars to structural equations or structural econometric models and focus more on longrun results than short - run dynamics. third, monetarists are skeptical of the ability to use monetary policy for short - run stabilization, despite the fact that they believe short - run variations in money growth do affect aggregate demand and hence output. as a result, they favor rules, often passive rules, that focus on achieving a rate of money growth consistent with price stability in the long run, with no adjustment to cushion short - run fluctuations in aggregate demand. this preference reflects again the uncertainty about the structure of the economy and about short - run dynamics and the long and variable lags in the response of aggregate demand to changes in the money supply. there is an over - riding theme across these features of monetarism : they focus on the role of money and the conclusion that " money matters. " money matters – indeed it is just about all that matters – for inflation in the long run. given the widespread commitment to price stability, monetarists believe that central banks should therefore give appropriate attention to money growth in the conduct of monetary policy. ii. the consensus macro model : monetarism without money? one way to judge the influence of monetarism is by the conformity of today's consensus macro model with monetarism's central features, as set out above. one of my favorite sayings about economists is, " two economists, three opinions. " that saying is more true of macroeconomists than of microeconomists. for that reason defining a consensus macro model has always been a challenge. but i believe there has been some convergence toward a consensus in recent years. this consensus is typically expressed in terms of a simple three - equation dynamic model : g g g ( 1 ) y t = a y t - 1 + b et ( y t + 1 ) - c [ rt - et ( pt + 1 ) ] + xt g ( 2 ) pt = d ( y t ) + w1 pt - 1 + w

role in identifying financial firms that may deserve designation as systemically important and thus subject to consolidated supervision, as suggested above. these and other actions by congress and the regulatory agencies, completed and proposed, offer a real and welcome prospect of broad reform in the financial regulatory system. still, as the reform process proceeds and people inevitably become involved in detailed debates on the merits of particular ideas, i would suggest that there are two basic norms that should guide the outcome of this process. first, there is some danger that reforms and restrictions on financial activity will simply be piled on one another, with insufficient attention to their cumulative or interactive effects. reforms must reflect the social and economic desirability of ensuring access to credit on risk - sensible terms for businesses and consumers alike, even as policymakers strive to ensure that methods of credit allocation are consistent with financial stability. second, the reform process cannot be judged a success until it substantially reduces systemic risk and the too - big - to - fail problem. while it is unrealistic to think that these concerns can be eliminated, it is critical that they be addressed head - on. we cannot know for certain that the regulatory, supervisory, and legislative changes to which i have already alluded will be up to these tasks. accordingly, as i have said before, all participants in the reform process must continue to explore other possibilities – including potentially quite innovative possibilities – even as we work to shape and implement the current batch of worthwhile proposals to these ends. a " new normalcy " for credit markets thus far i have spoken exclusively from the perspective of a member of the board of governors of the federal reserve in thinking about the economy, monetary policy, financial supervision, and regulatory reform. before closing, i want to make a few more general comments on changes, actual or potential, in credit markets. these remarks are prompted in part by the conversations i often have with bankers, business people, and consumers. during these discussions i have realized that just about everyone understands we will never return to the credit markets of the middle part of this decade, but very few people believe they understand what the " new normal " will look like once the crisis has fully passed and the economy is on a sustained recovery path. i suspect that this uncertainty is itself an impediment to stronger growth, since it makes financial planning more difficult. there are some features of the pre - crisis credit world with little to be said for them, whose apparent demise we should welcome. for example, mortgage lending