This paper examines the role of the federal funds rate in monetary transmission and its effectiveness as a measure of monetary policy. The authors argue that the federal funds rate is a highly informative indicator of future macroeconomic developments, more so than monetary aggregates or other interest rates. They suggest that the funds rate is a good indicator of monetary policy actions because it sensitively records shocks to the supply of bank reserves, not the demand for them. The paper presents evidence that monetary policy works through both "credit" (bank loans) and "money" (bank deposits), even though bank loans do not Granger-cause real variables. The authors use innovations in the funds rate as a measure of changes in monetary policy and find that the federal funds rate is a strong predictor of real economic variables. They also show that the federal funds rate is a good measure of the Federal Reserve's policy stance, particularly before October 1979. The paper provides evidence that the supply of nonborrowed reserves was extremely elastic at the target federal funds rate prior to October 1979, which supports the idea that the funds rate is a good measure of monetary policy. The authors also examine the relationship between the federal funds rate and other monetary indicators, such as the spread between the funds rate and the long-term bond rate. They find that the federal funds rate is a better predictor of real economic variables than other interest rates. The paper concludes that monetary policy does affect the real economy, and that the transmission mechanism involves both credit and money. The findings support the view that the federal funds rate is a useful indicator of monetary policy and that monetary policy works through both credit and money.This paper examines the role of the federal funds rate in monetary transmission and its effectiveness as a measure of monetary policy. The authors argue that the federal funds rate is a highly informative indicator of future macroeconomic developments, more so than monetary aggregates or other interest rates. They suggest that the funds rate is a good indicator of monetary policy actions because it sensitively records shocks to the supply of bank reserves, not the demand for them. The paper presents evidence that monetary policy works through both "credit" (bank loans) and "money" (bank deposits), even though bank loans do not Granger-cause real variables. The authors use innovations in the funds rate as a measure of changes in monetary policy and find that the federal funds rate is a strong predictor of real economic variables. They also show that the federal funds rate is a good measure of the Federal Reserve's policy stance, particularly before October 1979. The paper provides evidence that the supply of nonborrowed reserves was extremely elastic at the target federal funds rate prior to October 1979, which supports the idea that the funds rate is a good measure of monetary policy. The authors also examine the relationship between the federal funds rate and other monetary indicators, such as the spread between the funds rate and the long-term bond rate. They find that the federal funds rate is a better predictor of real economic variables than other interest rates. The paper concludes that monetary policy does affect the real economy, and that the transmission mechanism involves both credit and money. The findings support the view that the federal funds rate is a useful indicator of monetary policy and that monetary policy works through both credit and money.