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Monetary Policy with a Credit Aggregate Target

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  • Benjamin M. Friedman

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

  • Benjamin M. Friedman, 1982. "Monetary Policy with a Credit Aggregate Target," NBER Working Papers 0980, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0980
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    References listed on IDEAS

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    1. Charles Sivesind & Kevin Hurley, 1980. "Choosing an Operating Target for Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(1), pages 199-203.
    2. DeRosa, Paul & Stern, Gary H., 1977. "Monetary control and the federal funds rate," Journal of Monetary Economics, Elsevier, vol. 3(2), pages 217-230, April.
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    1. Hernando Vargas, 1995. "La Relación entre el Crédito y la Inflación," Borradores de Economia 037, Banco de la Republica de Colombia.
    2. Jocelyn Horne & Mehdi Monadjemi, 1985. "Debt, Credit and Monetary Targeting in Australia," The Economic Record, The Economic Society of Australia, vol. 61(2), pages 522-534, June.
    3. Blinder, Alan S & Stiglitz, Joseph E, 1983. "Money, Credit Constraints, and Economic Activity," American Economic Review, American Economic Association, vol. 73(2), pages 297-302, May.
    4. Cătălin-Emilian HUIDUMAC-PETRESCU & Alexandru Cătălin POPA, 2016. "Macroeconomic strategies for the prevention of economic and financial crisis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(606), S), pages 171-182, Spring.
    5. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
    6. Edward Offenbacher & Richard D. Porter & Georg Rich, 1983. "Empirical comparisons of credit and monetary aggregates using vector autoregressive methods," Economic Review, Federal Reserve Bank of Richmond, vol. 69(Nov), pages 16-29.
    7. Barran, Fernando & Kegels, Chantal, 1996. "Channels of Monetary Policy in a Transition Country: Hungary," LIDAM Discussion Papers IRES 1996016, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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