Monetary Policy

According to the Europe Central Bank website, the treaty establishing the Europe community “makes dear that ensuring price stability is the most important contribution that monetary policy can make to achieve a favorable economic environment and a high level of employment.” If price stability is the only goal of monetary policy, explain how monetary policy would be conducted during recessions. Analyze both cases of a recession that is the result of a demand shock and the case of a recession that is the result of a supply shock.