Traditional textbook analysis of monetary policy often implies that central banks control the money supply, relying on
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Traditional textbook analysis of monetary policy often implies that central banks control the money supply, relying on ‘multiplier’ effect from base to broad money. In the real world and when outside of the zero lower bound, how is monetary policy typically conducted? What role, if any, does the money supply play in the conduct of monetary policy? If the economy were in a recession and inflation below target, how should policy makers adjust the monetary policy stance and what factors should they consider in the process of reaching their final objectives? If expectations of inflation fell below the inflation target level, would this be a concern and how might policy makers be able to respond?
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