The Objectives for, and Conduct of, Monetary Policy in the 1990s (1992)

In contrast to the previous two decades, there is presently, at the outset of the 1990s, a considerable degree of consensus about the appropriate objectives and functions for a central bank in the conduct of macro monetary policy. During the late 1960s and 1970s there was a ferment of discussion about theoretical aspects of monetary policy, with conflict between the various schools of Monetarists and Keynesians. The decisive battle in that conflict was won by the Monetarists with the general acceptance that there was no medium- or longer-term trade-off between inflation and output growth, and that expectations, if not perhaps as fully informed as some theoreticians might propose, would at least not be subject to systematic error. Hence the medium- and longer-term Phillips curves were vertical, and the appropriate medium-term financial strategy for any monetary authority was to reduce inflation steadily towards the achievement of price stability; though the optimal dynamic path to price stability was, and remains, a contentious subject, to which I shall revert.