This paper investigates whether monetary policy has become more effective in recent decades. Using a vector autoregression (VAR) model, the authors find evidence of a reduction in the effect of monetary policy shocks in the post-1980 period. They then estimate a structural macroeconomic model to interpret these changes in the monetary transmission mechanism. The main finding is that monetary policy has been more stabilizing in the recent past, as it has responded more effectively to shocks and ruled out non-fundamental fluctuations. Specifically, the Fed has become more responsive to inflation expectations, which has led to a more stable response to supply and demand shocks. The paper also finds that the current policy prevents the existence of non-fundamental fluctuations, a change not observed in the pre-1980 period. The authors conclude that the effectiveness of monetary policy has improved, both in terms of its response to shocks and in stabilizing the economy.This paper investigates whether monetary policy has become more effective in recent decades. Using a vector autoregression (VAR) model, the authors find evidence of a reduction in the effect of monetary policy shocks in the post-1980 period. They then estimate a structural macroeconomic model to interpret these changes in the monetary transmission mechanism. The main finding is that monetary policy has been more stabilizing in the recent past, as it has responded more effectively to shocks and ruled out non-fundamental fluctuations. Specifically, the Fed has become more responsive to inflation expectations, which has led to a more stable response to supply and demand shocks. The paper also finds that the current policy prevents the existence of non-fundamental fluctuations, a change not observed in the pre-1980 period. The authors conclude that the effectiveness of monetary policy has improved, both in terms of its response to shocks and in stabilizing the economy.