The conduct of monetary policy under current monetary arrangements

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Journal of Monetary Economics, ISSN: 0304-3932, Vol: 4, Issue: 2, Page: 371-388

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Allan H. Meltzer
Elsevier BV; Elsevier
Economics, Econometrics and Finance; Economic Policy; Economics; Industrial Organization
article description
House Concurrent Resolution 133 required the Federal Reserve to break with past secrecy by announcing proposed annual growth rates for 'monetary aggregates' four times a year. Earlier the central banks of Germany and Switzerland announced intended annual average growth rates for a specific monetary aggregate.1 Later, central banks in Canada, France, Japan, Britain and elsewhere made similar decisions. I shall refer to all the monetary aggregates as 'money' to avoid excessive emphasis on details, and describe the change in policy as a decision to use money as the principal indicator of monetary policy as defined in Brunner and Meltzer (1967). The central banks of the various countries now set a target rate of interest, level of free liquid reserves, exchange rate or some other market variable that is thought to be consistent with a desired rate of growth of money. The desired growth rate of money is not an end but is a means to achieve some anticipated rate inflation and pace of economic activity in the near future - in the course of the next year or two.