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March 1971

The Implementation Problem of Monetary Policy

by Albert E. Burger

During the past two decades, there has been considerable controversy regarding the appropriate method of implementing monetary policy. One approach emphasizes market interest rates; the other, monetary aggregates. This article sets forth the basic issues underlying this controversy. It demonstrates the manner in which the market interest rate approach can lead to perverse monetary actions; whereas the monetary aggregate approach reduces the likelihood of such a result.