Monetary policy faces challenges as financial sector undergoes major changes.
The article discusses how changes in the financial sector have made traditional monetary models less effective in analyzing economic issues and guiding policy. Monetary policy now relies more on judgment than on these models. For example, many countries no longer use monetary targets. The article explores recent developments in monetary economics and argues that old policy recommendations may not apply to changing economies. Some countries, like Australia, now use a discretionary approach based on a checklist of indicators to guide policy decisions.