It’s easy enough to set a policy goal such as price stability or low and stable inflation, but because monetary policy affects the economy with a lag, achieving those goals requires an ability to peer into the future. A change in the money supply or interest rates today won’t affect inflation for months, or even years, down the road. Consequently, policymakers use economic models and forecasts to help them make decisions.

This article appeared in the May/June 1999 edition of Business Review.

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