Monetary policy frameworks : gradual implementation of steadily evolving theory

This Economic Brief reviews the main features of monetary policy frameworks implemented by the major central banks following the collapse of the Bretton Woods system of fixed exchange rates in the early 1970s. It discusses how these frameworks were affected by the academic views prevailing at the time and also (vice versa) how the experiences of monetary authorities were reflected in contemporary academic work. It shows that theory and practice of monetary policy conduct continuously influence each other and are thus closely interrelated. While some features of policy frameworks proved to be more persistent, some were rather short-lived. The emphasis on longer-term price stability clearly emerged as an essential feature of sound monetary policy and is currently reflected in the policy frameworks of all major central banks. At the same time, specific operational tools employed to de-liver price stability continue to differ, also due to considerable differences in national economic and financial sector structures and associated policy challenges.