ABSTRACT
This chapter discusses the relationship of money and economic growth starts with his citation of one point, perhaps the only point, on which essentially all economists agree: money is neutral in the long run under certain highly specific analytical assumptions. It focuses on to the relationship between discretionary policy and forecasts. There are several virtues to the monetary base as the target of monetary policy or of Fed policy actions. A more appealing feature of the base is the potential for simplifying much of the conduct of monetary policy and for avoiding the hazards and complications of the variability of the money multiplier, the ratio of the money stock to the monetary base. Monetary economics emphasizes the crucial importance of policy surprises on economic outcomes. It is unanticipated money growth that alters interest rates and the real variables that cause real effects, including business cycles.
