Economic Review

1987

 
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Nov/Dec, 1987

Money Growth Volatility and High Nominal Interest Rates

Yash P. Mehra

The period 1979-86 saw (1) high interest rates, (2) volatile money growth, and (3) new Fed operating procedures. Was the third item the chief cause of the other two? Probably not. For much of the increased monetary volatility stemmed not from the new procedures but rather from the public's deregulation-induced switching from assets included in M1 to those included in M1 and M2. Moreover it was not monetary volatility as much as deregulation-triggered rises in money demand that contributed to high rates early in the period.



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