What remains of monetarism?
In October 1979 the Federal Reserve, in an attempt to curb double-digit inflation, announced that it would place more weight on monetary aggregates in policy deliberations. This policy shift helped reduce inflation but sent the economy into a recession. Three years later the Fed abandoned monetary targets and returned to targeting the federal funds rate. ; Monetary growth targets currently play no official role in the setting of U.S. monetary policy. Is such disregard justified by the data any more today than it was twenty years ago? This article provides a historical perspective on the development and apparent failure of monetarism as a policy guide. ; The author also explores whether the basic monetarist propositions still hold true for a sample of fifteen countries. The analysis suggests that it is premature to dismiss monetary aggregates as uninformative. The data from the economies studied indicate that, in general, nominal income growth and inflation are positively related to money growth. While these results do not support short-term manipulation of the monetary aggregates to deliver precise control over movements in income and prices, they also do not reject the notion that changes in money growth have important long-term effects on the economy. What the results suggest, therefore, is that failure to acknowledge this empirical fact could lead to undesirable policy consequences.
Volume (Year): (2001)
Issue (Month): Q4 ()
|Contact details of provider:|| Postal: |
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:ucp:bkecon:9780226264141 is not listed on IDEAS
- McCallum, Bennett T & Nelson, Edward, 1999.
"An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 31(3), pages 296-316, August.
- Bennett T. McCallum & Edward Nelson, . "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," GSIA Working Papers 1997-71, Carnegie Mellon University, Tepper School of Business.
- Bennett T. McCallum & Edward Nelson, 1997. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," NBER Working Papers 5875, National Bureau of Economic Research, Inc.
- Robert L. Hetzel, 2000. "The Taylor rule : is it a useful guide to understanding monetary policy?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-33.
- Johannes, James M. & Rasche, Robert H., 1979. "Predicting the money multiplier," Journal of Monetary Economics, Elsevier, vol. 5(3), pages 301-325, July.
- William G. Dewald, 1988. "Monetarism is dead; long live the quantity theory," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-18.
- Robert J. Barro, 1996.
"Inflation and growth,"
Federal Reserve Bank of St. Louis, issue May, pages 153-169.
- Hafer, R W & Kutan, A M, 1997. "More Evidence on the Money-Output Relationship," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 48-58, January.
- Karl Brunner, 1968. "The role of money and monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 8-24.
- Nelson, Edward, 2002.
"Direct effects of base money on aggregate demand: theory and evidence,"
Journal of Monetary Economics,
Elsevier, vol. 49(4), pages 687-708, May.
- Edward Nelson, 2000. "Direct effects of base money on aggregate demand: theory and evidence," Bank of England working papers 122, Bank of England.
- Nelson, Edward, 2001. "Direct Effects of Base Money on Aggregate Demand: Theory and Evidence," CEPR Discussion Papers 2666, C.E.P.R. Discussion Papers.
- Gerald P. Dwyer & R.W. Hafer, 1988. "Is money irrelevant?," Review, Federal Reserve Bank of St. Louis, issue May, pages 3-17.
- Arturo Estrella & Frederic S. Mishkin, 1996.
"Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?,"
NBER Working Papers
5845, National Bureau of Economic Research, Inc.
- Estrella, Arturo & Mishkin, Frederic S., 1997. "Is there a role for monetary aggregates in the conduct of monetary policy?," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 279-304, October.
- Hafer, R. W. & Hein, Scott E., 1984.
"Predicting the money multiplier : Forecasts from component and aggregate models,"
Journal of Monetary Economics,
Elsevier, vol. 14(3), pages 375-384, November.
- R. W. Hafer & Scott E. Hein, 1983. "Predicting the money multiplier: forecasts from component and aggregate models," Working Papers 1983-012, Federal Reserve Bank of St. Louis.
- R. W. Hafer & David C. Wheelock, 2001. "The rise and fall of a policy rule: monetarism at the St. Louis Fed, 1968-1986," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 1-24.
- Leonall C. Andersen & Keith M. Carlson, 1970. "A monetarist model for economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Apr, pages 7-25.
When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:2001:i:q4:p:13-33:n:v.86no.4. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector)
If references are entirely missing, you can add them using this form.