This paper investigates whether monetary policy has become more effective over the last 40 years, focusing on changes in the monetary transmission mechanism. Using a VAR model, the authors find that the effect of monetary policy shocks on output and inflation has decreased since the early 1980s. They then estimate a structural macroeconomic model that replicates the dynamic response of output, inflation, and the federal funds rate to monetary policy shocks in both pre- and post-1980 periods. The results show that monetary policy has become more stabilizing in the recent past, partly due to the Fed's increased responsiveness to inflation expectations. The model also reveals that monetary policy has been more effective in stabilizing inflation and output in response to supply and demand shocks. The authors conclude that the changes in the monetary transmission mechanism are primarily due to improvements in monetary policy conduct, rather than a reduction in policy effectiveness. The estimated structural model allows for counterfactual experiments to determine the sources of the observed changes in monetary policy effectiveness. The main finding is that monetary policy has been more stabilizing since the early 1980s, as a result of both the way it has responded to shocks and by ruling out non-fundamental fluctuations.This paper investigates whether monetary policy has become more effective over the last 40 years, focusing on changes in the monetary transmission mechanism. Using a VAR model, the authors find that the effect of monetary policy shocks on output and inflation has decreased since the early 1980s. They then estimate a structural macroeconomic model that replicates the dynamic response of output, inflation, and the federal funds rate to monetary policy shocks in both pre- and post-1980 periods. The results show that monetary policy has become more stabilizing in the recent past, partly due to the Fed's increased responsiveness to inflation expectations. The model also reveals that monetary policy has been more effective in stabilizing inflation and output in response to supply and demand shocks. The authors conclude that the changes in the monetary transmission mechanism are primarily due to improvements in monetary policy conduct, rather than a reduction in policy effectiveness. The estimated structural model allows for counterfactual experiments to determine the sources of the observed changes in monetary policy effectiveness. The main finding is that monetary policy has been more stabilizing since the early 1980s, as a result of both the way it has responded to shocks and by ruling out non-fundamental fluctuations.