The Conduct of Monetary Policy Under Current Monetary Arrangements

House Concurrent Resolution 133 required the Federal Reserve to break with past secrecy by announcing proposed annual growth rates for 'monetary aggregates' four times a year. Earlier the central banks of Germany and Switzerland announced intended annual average growth rates for a specific monetary aggregate.1 Later, central banks in Canada, France, Japan, Britain and elsewhere made similar decisions. I shall refer to all the monetary aggregates as 'money' to avoid excessive emphasis on details, and describe the change in policy as a decision to use money as the principal indicator of monetary policy as defined in Brunner and Meltzer (1967). The central banks of the various countries now set a target rate of interest, level of free liquid reserves, exchange rate or some other market variable that is thought to be consistent with a desired rate of growth of money. The desired growth rate of money is not an end but is a means to achieve some anticipated rate inflation and pace of economic activity in the near future - in the course of the next year or two.