Base Drift and the Longer Run Growth of M1: Experience from a Decade of Monetary Targeting

Abstract

This article discusses a technical aspect of the Federal Reserve's monetary targeting procedure that has come to be known as "base drift." The Fed has been announcing larger ranges for the growth of M1 and other monetary aggregates since 1975. These ranges have been expressed in terms of rates of growth from a base quarter to the quarter four quarters later. The term "base drift" refers to the Fed's practice of using the actual dollar level of an aggregate in the base quarter as the base level for the target range, rather than the midpoint of the targeted range set in the preceding targeting period.