Some Issues in Controlling the Stock of Money and Discussion

There has been a great deal of debate during the last few years over the ability of the Federal Reserve to control the stock of money. The participants in the debate are easy to identify. Economists of the monetarist persuasion assert that not only is the stock of money the proper instrument to use in influencing economic behavior, but they also argue that it is relatively easy to control, even in the short run. On the other hand, economists with a Keynesian bent seem to argue that money is not all that important to begin with, nor is it subject to short-run control by the monetary authorities. This debate has not been characterized by a great deal of theoretical analysis nor by much empirical work, although the amount of empirical analysis has increased in the last few years. The most complete theoretical discussion of the issue of determination of the money stock has been provided in a series of papers by Brunner and Meltzer.1 While their analysis added greatly to our understanding of the money supply and demand nexus, their analysis was of static