IDEAS home Printed from https://ideas.repec.org/p/fip/fedrwp/85-01.html
   My bibliography  Save this paper

Base drift and the longer run growth of M1 : experience from a decade of monetary targeting

Author

Listed:
  • Alfred Broaddus
  • Marvin Goodfriend

Abstract

This article discusses a technical aspect of the Federal Reserve's monetary targeting procedure that has come to be known as \"base drift.\" The Fed has been announcing larger ranges for the growth of M1 and other monetary aggregates since 1975. These ranges have been expressed in terms of rates of growth from a base quarter to the quarter four quarters later. The term \"base drift\" refers to the Fed's practice of using the actual dollar level of an aggregate in the base quarter as the base level for the target range, rather than the midpoint of the targeted range set in the preceding targeting period.

Suggested Citation

  • Alfred Broaddus & Marvin Goodfriend, 1985. "Base drift and the longer run growth of M1 : experience from a decade of monetary targeting," Working Paper 85-01, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:85-01
    as

    Download full text from publisher

    File URL: http://www.richmondfed.org/publications/research/working_papers/1985/wp_85-1.cfm
    Download Restriction: no
    File URL: http://www.richmondfed.org/publications/research/working_papers/1985/pdf/wp85-1.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marvin Goodfriend, 1982. "A model of money stock determination with loan demand and a banking system balance sheet constraint," Economic Review, Federal Reserve Bank of Richmond, vol. 68(Jan), pages 3-16.
    2. Edward J. Kane, 1975. "New Congressional Restraints and Federal Reserve Independence," Challenge, Taylor & Francis Journals, vol. 18(5), pages 37-44, November.
    3. Stephen H. Axilrod, 1985. "U.S. monetary policy in recent years: an overview," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 14-24.
    4. William Poole, 1976. "Interpreting the Fed's Monetary Targets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 247-260.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bennett T. McCallum, 2002. "Recent developments in monetary policy analysis: the roles of theory and evidence," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 67-96.
    2. Lucas, Robert E. & Nicolini, Juan Pablo, 2015. "On the stability of money demand," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 48-65.
    3. Edward Nelson, 2021. "The Emergence of Forward Guidance As a Monetary Policy Tool," Finance and Economics Discussion Series 2021-033, Board of Governors of the Federal Reserve System (U.S.).
    4. Bordo, Michael D. & Choudhri, Ehsan U. & Schwartz, Anna J., 1990. "Money stock targeting, base drift, and price-level predictability : Lessons from the U.K. Experience," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 253-272, March.
    5. Rik Hafer, 1999. "Against the tide: Malcolm Bryan and the introduction of monetary aggregate targets," Economic Review, Federal Reserve Bank of Atlanta, vol. 84(Q1), pages 20-37.
    6. Weise, Charles L, 2008. "Political constraints on monetary policy during the Great Inflation," MPRA Paper 8694, University Library of Munich, Germany.
    7. Dotsey, Michael & Hornstein, Andreas, 2003. "Should a monetary policymaker look at money?," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 547-579, April.
    8. Peter N. Ireland, 1993. "Price stability under long-run monetary targeting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 25-46.
    9. Benchimol, Jonathan & Qureshi, Irfan, 2020. "Time-varying money demand and real balance effects," Economic Modelling, Elsevier, vol. 87(C), pages 197-211.
    10. Marvin Goodfriend, 1997. "Monetary policy comes of age: a 20th century odyssey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-22.
    11. Jed L. DeVaro & Michael Dotsey, 1995. "Was the disinflation of the early 1980's anticipated?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 41-60.
    12. Edward Nelson, 2012. "A Review of Allan Meltzer’s A History of the Federal Reserve, Volume 2," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 241-266, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-1247, December.
    2. Carl E. Walsh, 1987. "Monetary targeting and inflation: 1976-1984," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 5-16.
    3. Timothy Q. Cook, 1989. "Determinants of the federal funds rate: 1979-1982," Economic Review, Federal Reserve Bank of Richmond, vol. 75(Jan), pages 3-19.
    4. Orphanides, Athanasios & Williams, John C., 2005. "The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1927-1950, November.
    5. William E. Cullison, 1988. "On recognizing inflation," Economic Review, Federal Reserve Bank of Richmond, vol. 74(Jul), pages 4-12.
    6. Robert L. Hetzel, 1984. "Monetary policy in the early 1980's," Working Paper 84-01, Federal Reserve Bank of Richmond.
    7. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
    8. Charles E. Hegji, 1989. "FOMC Targets, Base Drift and Inflationary Expectations," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 45-54, Jan-Mar.
    9. Gordon, David B. & Leeper, Eric M. & Zha, Tao, 1998. "Trends in velocity and policy expectations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 265-304, December.
    10. Timothy Q. Cook, 1988. "Determinants of the Federal funds rate: 1979 - 1982," Working Paper 88-07, Federal Reserve Bank of Richmond.
    11. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    12. Davis, Mark S. & Tanner, J. Ernest, 1997. "Money and economic activity revisited," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 955-968, December.
    13. Choi, Jae-Young & Ratti, Ronald A., 2000. "The Predictive Power of Alternative Indicators of Monetary Policy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 581-610, October.
    14. Carl E. Walsh, 1987. "The impact of monetary targeting in the United States, 1976-1984," Working Papers in Applied Economic Theory 87-04, Federal Reserve Bank of San Francisco.
    15. Yash P. Mehra, 1985. "Inflationary expectations, money growth, and the vanishing liquidity effect of money on interest : a further investigation," Economic Review, Federal Reserve Bank of Richmond, vol. 71(Mar), pages 23-35.
    16. Robert L. Hetzel, 1988. "The monetary responsibilities of a central bank," Economic Review, Federal Reserve Bank of Richmond, vol. 74(Sep), pages 19-31.
    17. Raymond E. Lombra, 1992. "Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination," Eastern Economic Journal, Eastern Economic Association, vol. 18(3), pages 305-314, Summer.
    18. Robert L. Hetzel, 1986. "A critique of theories of money stock determination," Working Paper 86-06, Federal Reserve Bank of Richmond.
    19. Bordo, Michael D. & Choudhri, Ehsan U. & Schwartz, Anna J., 1990. "Money stock targeting, base drift, and price-level predictability : Lessons from the U.K. Experience," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 253-272, March.
    20. Polster, Rainer & Gottschling, Andreas, 1999. "Stability issues in German money multiplier forecasts," Research Notes 99-8, Deutsche Bank Research.

    More about this item

    Keywords

    Monetary policy; Money;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:85-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Pascasio (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.