Economic Brief

May 2013, No. 13-05

Does Money Still Matter for Monetary Policy?

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Economists agree that inflation is a monetary phenomenon, but since 1982, monetary policymakers have demoted measures of the money supply from prime targets to key indicators to incidental byproducts. With excess bank reserves at all-time highs, however, measures of money may have a renewed purpose as red flags for inflation.

Additional Resources

Broaddus, Alfred, and Marvin Goodfriend, "Base Drift and the Longer Run Growth of M1: Experience from a Decade of Monetary Targeting," Federal Reserve Bank of Richmond Economic Review, November/December 1984, no. 70, pp. 3-14.

Ennis, Huberto M., and Alexander L. Wolman, "Excess Reserves and the New Challenges for Monetary Policy," Federal Reserve Bank of Richmond Economic Brief, March 2010, vol. 10, no. 3.

Friedman, Milton, "The Role of Monetary Policy," Presidential Address to the American Economic Association, Washington, D.C., December 29, 1967, published in the American Economic Review, March 1968, vol. 58, no. 1, pp. 1-17.

Hetzel, Robert L., "Monetary Policy in the Early 1980s," Federal Reserve Bank of Richmond Working Paper No. 84-1, May 1984.

Lindsey, David E., Athanasios Orphanides, and Robert H. Rasche, "The Reform of October 1979: How It Happened and Why," Federal Reserve Bank of St. Louis Review, March/April 2005, vol. 87, no. 2, part 2, pp. 187–235.

Woodford, Michael, "Monetary Policy in a World without Money," International Finance, July 2000, vol. 3, no. 2, pp. 229–260. (A working paper version is available online.)