Has U.S. monetary policy actually improved over time? Or was the apparent success of the modern Federal Reserve mostly the result of more favorable economic conditions and better luck? In this post, we summarize our paper, * which develops a framework for comparing monetary policy across different economic environments. Our approach asks how close policy came to the best response given the economic conditions and shocks policymakers faced. Applying this framework to 150 years of U.S. monetary history, we find that meaningful improvements in monetary policy occurred only in the last thirty years. Most of the gains reflect, among other developments, substantially better responses to financial shocks and supply shocks.
