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BPEA Article

The Inefficiency of Short-Run Monetary Targets for Monetary Policy

Abstract

THE ADOPTION of short-run monetary targets has been the most significant development in the practice of central banking during the 1970s, at least in the context of domestic monetary policy. The central banks of most of the industrialized Western economies now use explicit targets for monetary growth in formulating and implementing monetary policy. In the United States the Federal Reserve System moved informally to a greater emphasis on the monetary aggregates in early 1970; and since 1975 the Congress, under House Concurrent Resolution 133, has required the Chairman of the Federal Reserve Board to report formally each quarter the specific monetary-growth targets chosen by the Federal Open Market Committee as the near-term objective of monetary policy. Private economic analysts in turn have come to focus on such announcements, and comparing each Thursday's new money statistics against the corresponding target values is now the economic highlight of the week in the financial markets. In short, the era of monetary policy by monetary targets has arrived.

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