NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Impact of Monetary Targeting in the United States: 1976-1984

Carl E. Walsh

NBER Working Paper No. 2384
Issued in September 1987
NBER Program(s):   ME

This paper attempts to assess empirically the impact on output and inflation of monetary policy in the U-S. during the period of M1 targeting from 1976 to 1984. The impact of policy shocks on output and inflation, and the impact of aggregate demand, aggregate supply and money demand shocks on M1 and the Fed's target path, are examined through the use of impulse response functions. These response functions are based on an orthogonalization of VAR residuals derived from an estimated structural model. The VAR specification reflects the finding that M1 and the Fed's target for M1 are cointegrated. The evidence suggests that money supply shocks and shocks to M1 target have accounted for little of the observed volatility of output or inflation. However, the induced policy response to aggregate demand and supply shocks has contributed to subsequent inflation.

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Document Object Identifier (DOI): 10.3386/w2384

Published: Walsh, Carl E. "Monetary Targeting And Inflation: 1976-1984." FRB San Francisco - Economic Review (Winter 1987): 5-16.

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