{ "id": "RL31416", "type": "CRS Report", "typeId": "REPORTS", "number": "RL31416", "active": false, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 346145, "date": "2009-03-16", "retrieved": "2016-04-07T02:40:17.072422", "title": "Monetary Aggregates: Their Use in the Conduct of Monetary Policy", "summary": "Economic theory and history make a compelling case that monetary policy is powerful in affecting the pace of economic activity and employment in the short run and the rate of inflation in the longer run. Thus, unambiguous indicators should exist for those formulating, executing, and overseeing monetary policy. To this end, definitions of money are sought, as are collections of assets consistent with those definitions. For these measures of money\u2014known as monetary aggregates\u2014to be useful in a policy context, they must, at a minimum, be stable and predictably related to spending, meaning that when they are changed, the subsequent change in spending can be closely predicted. If they meet that test they can provide information about the current stance of monetary policy. Should they be under the control of the Federal Reserve (Fed), they may be useful as intermediate target variables in the execution of monetary policy.\nThe monetary aggregates constructed by the Fed are no longer stable and predictably related to spending, although they once may have been. A vast number of studies have sought to explain the reason for this sudden instability. Their findings highlighted efforts by financial institutions to get around federal regulations, structural changes related to economic development, the use of U.S. currency abroad, and a number of one-time events such as the thrift crisis of the mid-1980s. Accounting for these developments led to refinements of the existing aggregates, development of new aggregates, and new measures of opportunity costs. At most, this research suggests that the refined old and new aggregates can provide useful information about future income growth, employment, and inflation. Several of the aggregates, however, do not seem to be under the control of the Fed.\nWere monetary aggregates to exist that were stable and predictably related to spending and under the control of the Fed, their use in the conduct of monetary policy would likely be controversial. Some economists, who see monetary instability as the major cause of business cycles, favor a rule-based policy of increasing the aggregates at a fixed percentage per year. Others, with different notions of the causes of cyclical instability, tend to favor a discretionary approach to policy and monetary fine tuning.\nIf ideal monetary aggregates do not exist or are not under the control of the Fed if they do exist, monetary policy can be formulated and executed in terms of interest rates. However, the relevant interest rates for household and business spending decisions are the real or inflation-adjusted rates. These rates can be affected by actions of others in the economy in addition to the Fed and by developments abroad. Thus, their movements may provide little information about monetary policy.\nThe oversight of monetary policy is handicapped by a lack of reliable, objective, and unambiguous monetary indicators. This leads to the unhealthy situation in which those responsible for overseeing monetary policy must rely heavily on the Fed to provide them with an assessment of policy, which may hinder an arms length assessment. This report will be updated.", "type": "CRS Report", "typeId": "REPORTS", "active": false, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/RL31416", "sha1": "5335c672ad24ab2180c73094ab2e4885d98c54f0", "filename": "files/20090316_RL31416_5335c672ad24ab2180c73094ab2e4885d98c54f0.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/RL31416", "sha1": "1ec3b5570791b8b3292aee43c5f6a910d0580fe4", "filename": "files/20090316_RL31416_1ec3b5570791b8b3292aee43c5f6a910d0580fe4.pdf", "images": null } ], "topics": [] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc810519/", "id": "RL31416_2002May15", "date": "2002-05-15", "retrieved": "2016-03-19T13:57:26", "title": "Monetary Aggregates: Their Use in the Conduct of Monetary Policy", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20020515_RL31416_bb5cc9195505aa378b017ed94a0581968798da0d.pdf" }, { "format": "HTML", "filename": "files/20020515_RL31416_bb5cc9195505aa378b017ed94a0581968798da0d.html" } ], "topics": [] } ], "topics": [ "Economic Policy" ] }