monetary policy, history of

Abstract

Monetary policy has evolved over the centuries, with the development of the money economy. To implement monetary policy the monetary authority uses its policy instruments (short-term interest rates or the monetary base) to achieve its goals of low inflation and real output close to potential. This article surveys the origins of monetary policy from the classical gold standard to the evolution of central banks and their quest for goal independence, documenting the evolution of the goals, instruments and intermediate targets of monetary policy, and surveying the development of theories of monetary policy, including the debate over rules versus discretion.