Appropriate Indicators of Monetary Policy

One of the most difficult problems in economic policy-making is learning to read the content of current policy. Each of us has probably looked at the sharp peaks or troughs in a time series ot interest rates, the growth rate of money, the index of industrial production or some other measure and wondered why we had so much difficulty interpreting the changes at the time they occurred. Errors of judgment that become apparent with hindsight result frequently from a failure to interpret correctly changes that have already occurred or that are likely to occur because of policy actions already taken. Unaware of the future effect of current or previous actions, policy makers delay action too long, change too abruptly or too much.