Introduction

Abstract

While there is little widespread agreement among economists as to how money affects the economy [see Stein (1982)], most economists would agree that, for one reason or another, money does matter. Consequently, money stock control is an important ingredient in almost everyone’s macroeconomic policy prescription. Unfortunately, there has been considerable debate both inside and outside the Federal Reserve as to the best way to control the money stock. Two approaches have emerged. One approach (frequently labeled monetarist) argues that control over the money stock is best exerted by controlling (targeting) reserve aggregates such as the monetary base or bank reserves while the other approach argues that control is best exerted by having the Federal Reserve target credit market conditions.