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Will Recent High Growth Rates Of Money Revive Inflation?

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  • ROBERT L. HETZEL

Abstract

From the end of 1984 through the middle of 1986, the monetary aggregate Ml growth rate has been extremely rapid by historical standards. The author argues that much of this rapid Ml growth reflects a transfer of funds out of banks' nonmonetary liabilities into banks' negotiable order of withdrawal (NOW) accounts. Prompting this transfer was the fall in market rates relative to rates offered on NOWs. In addition, the level of compensating balances that banks required of their corporate customers appears to have become more sensitive to market rates. Two measures are suggested to increase the usefulness of Ml targeting. The first is to use a shift‐adjusted Ml series, that is, a series adjusted for the flow of funds between NOW accounts and time deposits of banks. The second is to adjust Ml targets in light of interest rate changes.

Suggested Citation

  • Robert L. Hetzel, 1987. "Will Recent High Growth Rates Of Money Revive Inflation?," Contemporary Economic Policy, Western Economic Association International, vol. 5(1), pages 41-53, January.
    • Handle: RePEc:bla:coecpo:v:5:y:1987:i:1:p:41-53
    DOI: 10.1111/j.1465-7287.1987.tb00243.x
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    References listed on IDEAS

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    1. Peter E. Kretzmer & Richard D. Porter, 1987. "Total Transaction Measures And M1 Growth," Contemporary Economic Policy, Western Economic Association International, vol. 5(1), pages 64-75, January.
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    Cited by:

    1. Glennon, Dennis & Lane, Julia, 1996. "Financial innovation, new assets, and the behavior of money demand," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 207-225, March.
    2. Robert A. Black & Cindy Benzing, 1991. "Exchange Rates, Energy Prices, Unemployment, Money, and Inflation: A Further Test," Eastern Economic Journal, Eastern Economic Association, vol. 17(2), pages 189-197, Apr-Jun.
    3. Courtenay C. Stone & Daniel L. Thornton, 1987. "Solving the 1980s' velocity puzzle: a progress report," Review, Federal Reserve Bank of St. Louis, issue Aug, pages 5-23.

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