The Importance Of Combining Basic And Applied Literature In Determining International Monetary Policy

Abstract

This article is a discussion of the current state of knowledge about optimal monetary policy. The authors contrast basic and applied literatures. The basic literature is explicit about the frictions that generate a positive value for money and make it socially beneficial. The applied literature concentrates on ad hoc constructs. The authors discuss monetary policy lessons from each type of literature, as well as how the two distinct approaches may be usefully combined.