Monetary Policy with a Credit Aggregate Target

55 Pages Posted: 19 Jun 2004 Last revised: 7 Sep 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1982

Abstract

The principal criteria for the selection of an intermediate target for monetary policy are (1) that the target be closely related to the nonfinancial objectives of monetary policy, (2) that it contain information about the future movements of those relevant aspects of the nonfinancial economy, (3) that it be closely connected to the instruments over which the central bank can exert direct control, and (4) that data on it be readily available on a timely basis. The evidence presented in this paper indicates that, on each of the four criteria considered, total net credit is just as suitable as any of the monetary aggregates to serve as an intermediate target for monetary policy in the United States. As long as the Federal Reserve Sys tem continues to use an intermediate target procedure, this evidence is consistent with adopting a two-target framework based on both money and credit, thereby drawing on information from both sides of the public's balance sheet for the set of signals that govern the systematic response of monetary policy to economic events.

Suggested Citation

Friedman, Benjamin M., Monetary Policy with a Credit Aggregate Target (September 1982). NBER Working Paper No. w0980. Available at SSRN: https://ssrn.com/abstract=302558

Benjamin M. Friedman (Contact Author)

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