The Role of Money and Monetary Policy KARL BRUNNER° The Ohio State University HE DEVELOPMENT of monetary analysis in po olicy methods was naturally to be expected and the past decade has intensified the debate concerning is welcomed. Four articles which defend present the role of money and monetary policy. Extensive policy procedures have appeared during the past research fostered critical examinations of the Fed- few years in various Federal Reserve publications. I ral Reserve's traditional descriptions of policy and These articles comprise a countercritique which of the arrangements governing policymaking. Some argues that monetary impulses are neither properly academic economists and others attribute the cyclical measured nor actually transmitted by the money fluctuations of monetary growth and the persistent stock. The authors reject the Monetarist thesis that problem concerning the proper interpretation of monetary impulses are a chief factor determining monetary policy to the established procedures of variations in economic activity, and they contend monetary policy and the conceptions traditionally that cyclical fuctuations of monetary growth cannot guiding policymakers be attributed to the behavior of the Federal Reserve The critique of established policy procedure authorities. These fluctuations are claimed to result which evolved from this research into questions con- primarily from the behav al banks rming the monetary mechanism, is derived from a body of monetary theory referred to in this paper as The ideas and arguments put forth in these articles the Monetarist position. Three major conclusions have deserve close attention. The controversy defined by emerged from the hypotheses put forth. First, mone- the critique of policy in professional studies and the tary impulses are a major factor accounting for vari- countercritique appearing in Federal Reserve pub- ations in output, employment and prices. Second, lications bears on issues of fundamental importance movements in the money stock are the most reliable to public policy. Underlying all the fashionable word measure of the thrust of monetary impulses. Third, and phrases is the fundamental question: What is the the behavior of the monetary authorities dominates movements in the money stock over business cycles. ILyle Gramley and Samuel Chase, "Time Deposits in Mone. se to the criticisms of existing me Allan H Y中是地 ve Bank of Kansas City, March 196 The rol erry L. Jordan of the Federal Reserv Cycles, Monthly Review, Federal Reserve of new york Page 94-. -. --— ... -. .2—. ~ The Rote of Money and Monetary Policy KARL BRUNNER° The Ohio State University HE DEVELOPMENT of monetary analysis in the past decade has intensified the debate concerning the role of money and monetary policy. Extensive research fostered critical examinations of the Fed￾eral Reserve’s traditional descriptions of policy and of the arrangements governing policymaking. Some academic economists and others attribute the cyclical fluctuations of monetary growth and the persistent problem concerning the proper interpretation of monetary policy to the established procedures of monetary policy and the conceptions traditionally guiding policymakers. The critique of established policy procedures, which evolved from this research into questions con￾cerning the monetary mechanism, is derived from a body of monetary theory referred to in this paper as the Monetarist position. Three major conclusions have emerged from the hypotheses put forth. First, mone￾tary impulses are a major factor accounting for vari￾ations in output, employment and prices. Second, movements in the money stock are the most reliable measure of the thrust of monetary impulses. Third, the behavior of the monetary authorities dominates movements in the money stock over business cycles. A response to the criticisms of existing monetary °This paper owes a heavy debt to my long and stimulating association with Allan H. Melizer. I also wish to acknowledge the editorial assistance of Leonall C. Andersen, Keith M. Carlson, and Jerry L. Jordan of the Federal Reserve Bank of St. Louis. policy methods was naturally to be expected and is welcomed. Four articles which defend present policy procedures have appeared during the past few years in various Federal Reserve publications.1 These articles comprise a countercritique which argues that monetary impulses are neither properly measured nor actually transmitted by the money stock. The authors reject the Monetarist thesis that monetary impulses are a chief factor determining variations in economic activity, and they contend that cyclical fluctuations of monetary growth cannot be attributed to the behavior of the Federal Reserve authorities. These fluctuations are claimed to result primarily from the behavior of commercial banks and the public. The ideas and arguments put forth in these articles deserve close attention, The controversy defined by the critique of policy in professional studies and the countercritique appearing in Federal Reserve pub￾lications bears on issues of fundamental importance to public policy. Underlying all the fashionable words and phrases is the fundamental question: What is the 1 Lyle Cramley and Samuel Chase, “Time Deposits in Mone￾tary Analysis,” Federal Reserve Bulletin, October 1965. John H. Kareken, “Commercial Banks and the Sup~lyof Money: A Market Determined Demand Deposit Rate,’ Federal Re- serve Bulletin, October 1967. J. A. Cacy, “Alternative A~- proaches to the Analysis of the Financial Structure, Monthly Review, Federal Reserve Bank of Kansas City, March 1968. Richard C. Davis, “The Role of the Money Supply in Business Cycles,” Monthly Review, Federal Reserve Bank of New York, April 1968. Page 9