The rise and fall of a policy rule: monetarism at the St. Louis Fed, 1968-1986
AbstractFrom the 1960s to the 1980s, the Federal Reserve Bank of St. Louis played an important and highly visible role in the development and advocacy of stabilization policy based on the targeting of monetary aggregates. Research conducted at the St. Louis Bank extended earlier monetarist analysis that had focused on the role of money in explaining economic activity in the long run. Their success in finding apparently robust, stable relationships in both long- and short-run data led monetarists to apply long-run propositions to short-run policy questions, effectively competing with alternative views of the time. When the short-run correlation between money and economic activity went astray in the early 1980s, however, the efficacy of the monetarist rule and appeals for targeting monetary aggregates to achieve economic stabilization quickly lost credibility. This article traces the evolution of monetary policy research at the Federal Reserve Bank of St. Louis as it moved from the identification of long-run relationships between money and economic activity toward short-run policy analysis. The authors show how monetarists were lulled into advocating a short-run stabilization policy and argue that this experience councils against overconfidence in our ability to identify infallible rules for conducting short-run stabilization policy in general.
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Bibliographic InfoArticle provided by Federal Reserve Bank of St. Louis in its journal Review.
Volume (Year): (2001)
Issue (Month): Jan ()
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- Manfred Gärtner, 2002. "Monetary policy and central bank behaviour," University of St. Gallen Department of Economics working paper series 2002, Department of Economics, University of St. Gallen 2002-24, Department of Economics, University of St. Gallen.
- R.W. Hafer, 2001. "What remains of monetarism?," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q4, pages 13-33.
- Manfred Gärtner, 2006. "The political economy of monetary policy conduct and central bank design," University of St. Gallen Department of Economics working paper series 2006, Department of Economics, University of St. Gallen 2006-25, Department of Economics, University of St. Gallen.
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