that monetary stability actively promotes efficiency and growth. ( hence friedman ’ s suggestion that the long - run phillips curve, rather than vertical, might be positively sloped. ) also implicit in friedman ’ s focus on nominal stability is the view that central banks should avoid excessively ambitious attempts to manage the real economy, which in practice may exacerbate both nominal and real volatility. in friedman ’ s classic 1960 work, a program for monetary stability, he suggested that monetary stability might be attained by literally keeping money stable : that is, by fixing the rate of growth of a specific monetary aggregate and forswearing the use of monetary policy to “ fine - tune ” the economy. do contemporary monetary policymakers provide the nominal stability recommended by friedman? the answer to this question is not entirely straightforward. as i discussed earlier, for reasons of financial innovation and institutional change, the rate of money growth does not seem to be an adequate measure of the stance of monetary policy, and hence a stable monetary background for the economy cannot necessarily be identified with stable money growth. nor are there other instruments of monetary policy whose behavior can be used unambiguously to judge this issue, as i have already noted. in particular, the fact that the federal reserve and other central banks actively manipulate their instrument interest rates is not necessarily inconsistent with their providing a stable monetary background, as that manipulation might be necessary to offset shocks that would otherwise endanger nominal stability. ultimately, it appears, one can check to see if an economy has a stable monetary background only by looking at macroeconomic indicators such as nominal gdp growth and inflation. on this criterion it appears that modern central bankers have taken milton friedman ’ s advice to heart. over the past two decades, inflation has fallen sharply and stabilized around the world, not only in the industrialized nations but in emerging - market economies and in even the poorest developing nations. some central banks, so - called inflation targeters, have set explicit, quantitative targets for inflation ; but all central banks, certainly including the federal reserve, have emphasized the importance of achieving and maintaining price stability. on the issue of inflation control, friedman may be judged to have been a bit too pessimistic ; his concerns that central banks would have neither the technical ability nor the correct incentives to control inflation led him to recommend his money - growth rule, for which a central bank could certainly be held accountable. evidently, however, determined central banks can stabilize inflation directly, at least they have been able

base model indicate a lower impact of rate hikes on inflation than displayed in the related ecb working paper. the lower elasticity is mainly due to a more tempered response of short - term inflation expectations spurring from the re - estimation of vars that are used to model inflation expectations. 13. the chart also includes results from a large scale bvar including both macro and financial variables as in rostagno, m., altavilla, c., carboni, g., lemke, w., motto, r. and saint guilhem, a. ( 2021 ), “ combining negative rates, forward guidance and asset purchases : identification and impacts of ecb ’ s unconventional monetary policy “ working paper series, no 2564, ecb, june. monetary policy rate surprises are identified in the bvar by using the instrumental variable approach as in stock and watson ( 2012 ) and the target monetary policy shocks of altavilla et. al ( 2019 ). see, altavilla, c., brugnolini, l., gurkaynak, r., motto, r. and ragusa, g. ( 2019 ), “ measuring euro area monetary policy ”, journal of monetary economics, vol. 108, pp. 162 - 179 ; stock, j. h., and watson, m. w. ( 2012 ), “ disentangling the channels of the 20072009 recession ”, nber working paper, no 18094. 14. it is well established that the forward - looking behaviour of agents in the mawm - ii and mmr also tends to give rise to an expectations puzzle, in which policy decisions far out into the future can have very large impacts today. such policy commitments are unlikely to be credible however, and so these dsge models ( nawm - ii and mmr ) are typically adjusted to allow for discounting in the expectations formation process. 15. the long - term yield impacts of the change in balance sheet assumptions are computed using eser, f., lemke, w., nyholm, k., radde, s. and vladu, a. ( 2019 ), “ tracing the impact of the ecb ’ s asset purchase programme on the yield curve ”, international journal of central banking, forthcoming. the estimates for the yield impact of the balance sheet reduction use the balance sheet expectations in the weeks prior to the december 2021 governing council meeting