The Rise and Fall of Money Growth Targets as Guidelines for U.S. Monetary Policy


A familiar question raised by the Federal Reserve System's evolving use of money growth targets over the past twenty years is whether monetary policymakers had sound economics reasons for changing their procedures as they did — either in adopting money growth targets in the first place, or in subsequently abandoning them, or in both instances. This paper addresses that question by comparing two kinds of evidence base on U.S. time–series data. The main conclusion from this comparison is that whatever economic conditions might have warranted reliance on money growth targets in the 1970s and early 1980s had long disappeared by the 1990s, so that abandoning these targets was an appropriate response to changing circumstances. Whether adopting money growth targets earlier on was likewise appropriate is less clear.


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