There are two classic definitions of economics: Alfred Marshall's “a study of mankind in the ordinary business of life” (Marshall 1947, p. 1), and Lionell Robbins's “the allocation of scarce resources among competing ends” (Robbins 1935, pp. 12-15) Marshall focused on the questions that economists try to answer, whereas Robbins focused on the tools they have available. For better or for worse, Robbins's definition won out. But this book is Marshallian. It stresses the practical problems that demand answers, rather than those problems that can readily be resolved by the economist's tools. Although the authors of the various chapters in this book – most of whom are economists – use the maximizing model of economic analysis, their focus is on understanding Fed behavior, rather than on refining the tools of economic analysis. They are very much aware that these tools are means to an end, rather than ends in themselves. Hence, they refuse to bypass important economic problems simply because the applicable tools lack elegance and cannot provide rigorously derived answers. Such a problem-oriented focus is now a minority approach among academic economists and hence needs justification.

The problems that fall under the rubric of monetary policy are diverse. Some are problems of economic theory or econometrics, such as the optimal inflation rate or the controllability of the monetary growth rate. These problems rightly receive much discussion in the professional journals, discussion that obviously is necessary to formulate a correct monetary policy. But though such discussion is necessary, it is not sufficient. To gain a complete picture of any government policy, one must also consider the political milieu in which the policy is carried out.