Manetary Aggregates Targeting in a Law-Inflation Econamy

The first Boston Fed conference, 25 years ago in June 1969, bore the title, Controlling Monetary Aggregates. The conference volume leads off with a panel discussion, begun by Paul Samuelson. He opened his remarks with a one-sentence paragraph: "The central issue that is debated these days in connection with macro-economics is the doctrine of monetarism" (Samuelson 1969, p. 7). The background of that conference was the rising rate of inflation and accumulating evidence that excessive money growth was the cause of the problem. The principal question debated was whether the Fed should adopt a monetary target and abandon tight control of the federal funds rate. Today we are dealing with what appears to be the opposite problem. The inflation rate has fallen to levels not seen since the early 1960s, but experience over the past decade or so seems to show that inflation is no longer closely related to money growth. Nevertheless, the question concerning the best target for the Fed to pursue remains the same. The organizers of this conference have framed the topic for this session as follows: "Monetary policy has often been characterized as attempting to maintain an intermediate target, such as a monetary aggregate, within a target range. However, changing financial markets have called into question the reliability of the relationships between intermediate targets and ultimate goals of monetary policy .... Should monetary policy abandon intermediate targets?" With all due respect to my friends at the Boston Fed, the question is misstated. The quoted passage should read, "Should monetary policy