The Federal Reserve has responded by setting targets for four different
variables: M1, M2, M3, and the bank-credit proxy.2 (The proxy was later
dropped from the list.) The first set of one-year targets covered the period
from March 1975 to March 1976, while the second, third, and fourth sets
were defined in terms of the growth of the quarterly average of the targeted
variables from the second, third, and fourth quarters of 1975 to the corresponding
quarters of 1976. The purpose of this report is to analyze
initial experience with this targeting procedure.
The first and second sections outline the features and problems of the
present targeting procedures, and the third examines the operational significance
of the announced targets. An alternative method of expressing
monetary targets is suggested next, and the final section offers a few comments
on the possibility, suggested by some, of adding interest-rate targets
to the present system.