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Lessons from the 1979-1982 Monetary Policy Experiment

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  • Benjamin M. Friedman

Abstract

The experience of U.S. monetary policy during 1979-82 provided useful and potentially important new evidence about how monetary policy affects economic activity. This paper considers, inthe light of that evidence, six familiar propositions supporting the use of monetary aggregate targets for monetary policy. These propositions deal with money and nominal income, with price inflation and real economic growth, and with long-term interest rates. The evidence from the1979-82 experiment leads to doubt rather than confidence in each of these six propositions, and hence doubt rather than confidence in the use of monetary aggregate targets.

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  • Benjamin M. Friedman, 1984. "Lessons from the 1979-1982 Monetary Policy Experiment," NBER Working Papers 1272, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1272
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    1. Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-352, May.
    2. Richard H. Clarida & Benjamin M. Friedman, 1983. "Why Have Short-Term Interest Rates Been So High?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 553-586.
    3. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    4. George L. Perry, 1983. "What Have We Learned about Disinflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 587-602.
    5. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
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