Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates

  • Charles A. E. Goodhart


Although it is a generally accepted stylised fact that, as Milton Friedman noted, the monetary policy transmission mechanism has ‘long and variable lags’, most of the early theoretical work on these issues, e.g. the rules vs. discretion debate, proceeded on the assumption that monetary policy measures were instantly transmitted to inflation, e.g. Barro-Gordon (1983), Cukierman (1992). Thus in his basic model (Chapter 3, p. 28), Cukierman states that “Abstracting from real shocks, growth and changes in velocity, the rate of inflation is equal to the rate of monetary growth m. Hence inflationary expectations are equal to expected money growth me, and the shortrun Phillips relation can be restated as N − Nn = α (m−me),” where N is employment and Nn the natural rate of employment.


Interest Rate Monetary Policy Central Bank European Central Bank Inflation Target 
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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Charles A. E. Goodhart
    • 1
  1. 1.London School of EconomicsUK

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