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Allan Meltzer’s Model of the Transmission Mechanism and Its Implications for Today

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  • Peter N. Ireland

    (Boston College)

Abstract

Allan Meltzer developed his model of the monetary transmission mechanism in research conducted with Karl Brunner. The Brunner-Meltzer model implies that the Federal Reserve would benefit from drawing brighter lines between monetary and fiscal policy actions, eschewing credit market intervention and focusing, instead, on using its control over the monetary base to stabilize the aggregate price level. The model downplays the importance of the zero lower interest rate bound and suggests a greater role for monetary aggregates in the Fed’s policymaking strategy. Finally, it highlights the benefits that accrue when policy is conducted according to a rule rather than discretion.

Suggested Citation

  • Peter N. Ireland, 2017. "Allan Meltzer’s Model of the Transmission Mechanism and Its Implications for Today," Boston College Working Papers in Economics 938, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:938
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    References listed on IDEAS

    as
    1. Belongia, Michael T. & Ireland, Peter N., 2017. "Circumventing the zero lower bound with monetary policy rules based on money," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 42-58.
    2. Goodfriend, Marvin, 2014. "Lessons from a century of FED policy: Why monetary and credit policies need rules and boundaries," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 112-120.
    3. Ireland, Peter N., 2014. "The Macroeconomic Effects Of Interest On Reserves," Macroeconomic Dynamics, Cambridge University Press, vol. 18(6), pages 1271-1312, September.
    4. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    6. Peter N. Ireland, 2005. "The Liquidity Trap, The Real Balance Effect, And The Friedman Rule ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1271-1301, November.
    7. Allan H. Meltzer, 2012. "Federal Reserve Policy in the Great Recession," Cato Journal, Cato Journal, Cato Institute, vol. 32(2), pages 255-263, Spring/Su.
    8. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    9. Ireland, Peter N, 2000. "Interest Rates, Inflation, and Federal Reserve Policy since 1980," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 417-434, August.
    10. Meltzer, Allan H, 1987. "Limits of Short-run Stabilization Policy: Presidential Address to the Western Economic Association, July 3, 1986," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 1-14, January.
    11. Brunner, Karl & Cukierman, Alex & Meltzer, Allan H., 1983. "Money and economic activity, inventories and business cycles," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 281-319.
    12. Karl Brunner & Allan H. Meltzer, 1968. "Liquidity Traps for Money, Bank Credit, and Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 76(1), pages 1-1.
    13. Brunner, Karl & Meltzer, Allan H, 1971. "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review, American Economic Association, vol. 61(5), pages 784-805, December.
    14. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
    15. Allan H. Meltzer, 2001. "The Transmission Process," Palgrave Macmillan Books, in: Deutsche Bundesbank (ed.), The Monetary Transmission Process, chapter 3, pages 112-130, Palgrave Macmillan.
    16. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
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    Cited by:

    1. Edward Nelson, 2019. "Karl Brunner and U.K. Monetary Debate," Finance and Economics Discussion Series 2019-004, Board of Governors of the Federal Reserve System (U.S.).
    2. Edward Nelson, 2019. "The Monetary Base in Allan Meltzer's Analytical Framework," Finance and Economics Discussion Series 2019-001, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Allan Meltzer; Karl Brunner; Monetarism; Monetary Transmission Mechanism;
    All these keywords.

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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