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Base drift and the longer run growth of M1 : experience from a decade of monetary targeting

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  • Alfred Broaddus
  • Marvin Goodfriend

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.

Suggested Citation

  • Alfred Broaddus & Marvin Goodfriend, 1985. "Base drift and the longer run growth of M1 : experience from a decade of monetary targeting," Working Paper 85-01, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:85-01
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    References listed on IDEAS

    as
    1. Marvin Goodfriend, 1982. "A model of money stock determination with loan demand and a banking system balance sheet constraint," Economic Review, Federal Reserve Bank of Richmond, vol. 68(Jan), pages 3-16.
    2. Edward J. Kane, 1975. "New Congressional Restraints and Federal Reserve Independence," Challenge, Taylor & Francis Journals, vol. 18(5), pages 37-44, November.
    3. Stephen H. Axilrod, 1985. "U.S. monetary policy in recent years: an overview," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 14-24.
    4. William Poole, 1976. "Interpreting the Fed's Monetary Targets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 247-260.
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    Cited by:

    1. Bennett T. McCallum, 2002. "Recent developments in monetary policy analysis: the roles of theory and evidence," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 67-96.
    2. Lucas, Robert E. & Nicolini, Juan Pablo, 2015. "On the stability of money demand," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 48-65.
    3. Edward Nelson, 2021. "The Emergence of Forward Guidance As a Monetary Policy Tool," Finance and Economics Discussion Series 2021-033, Board of Governors of the Federal Reserve System (U.S.).
    4. Bordo, Michael D. & Choudhri, Ehsan U. & Schwartz, Anna J., 1990. "Money stock targeting, base drift, and price-level predictability : Lessons from the U.K. Experience," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 253-272, March.
    5. Rik Hafer, 1999. "Against the tide: Malcolm Bryan and the introduction of monetary aggregate targets," Economic Review, Federal Reserve Bank of Atlanta, vol. 84(Q1), pages 20-37.
    6. Weise, Charles L, 2008. "Political constraints on monetary policy during the Great Inflation," MPRA Paper 8694, University Library of Munich, Germany.
    7. Dotsey, Michael & Hornstein, Andreas, 2003. "Should a monetary policymaker look at money?," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 547-579, April.
    8. Peter N. Ireland, 1993. "Price stability under long-run monetary targeting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 25-46.
    9. Benchimol, Jonathan & Qureshi, Irfan, 2020. "Time-varying money demand and real balance effects," Economic Modelling, Elsevier, vol. 87(C), pages 197-211.
    10. Marvin Goodfriend, 1997. "Monetary policy comes of age: a 20th century odyssey," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-22.
    11. Jed L. DeVaro & Michael Dotsey, 1995. "Was the disinflation of the early 1980's anticipated?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 41-60.
    12. Edward Nelson, 2012. "A Review of Allan Meltzer’s A History of the Federal Reserve, Volume 2," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 241-266, June.

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    Keywords

    Monetary policy; Money;

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