The Theoretical Framework of Monetary Policy

Francisco Rosende R.

Authors

Francisco Rosende R. Pontificia Universidad Católica de Chile

Keywords:

monetary policy, monetary aggregates, interest rate rules, monetary policy rules, new Keynesian synthesis

Abstract

This paper reviews the recent literature on monetary policy rules. In particular, we discuss the theoretical framework underlying different monetary policy strategies. Currently, many central banks are imple-menting a scheme of monetary policy where the main instrument and indicator of it, is a short-run interest rate. In this scheme monetary aggregates have no place. Since this point of view, the well known Monetary Theory of Nominal Income (MTNI) seems to be obsolete. In this paper we analyze how far of this approach –the MTNI- has moved the practice of monetay policy. In particular, we discuss the theoretical framework of the so called “new keynesian synthesis".

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References

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The Theoretical Framework of Monetary Policy

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