The author discusses certain aspects of the worldwide rise in inflation that has occurred over the past decade and a half. In particular, he shares some personal observations and impressions that he gleaned during a recent visit to the United Kingdom, Switzerland, and West Germany.
Since it implemented a new monetary control procedure in October 1979, the Federal Reserve continuously has been criticized for creating additional instability within financial markets around the world. Critics point out that this increased instability has been caused by the volatile short-run money growth in the United States, the result of the Fed’s attempt to more directly control the money supply by focusing more on the growth of reserves and less on smoothing interest rates.
Since the observed growth rates of the monetary aggregates, M1B and M2, often diverge, monetary policymakers, their advisors, and “Fed watchers” naturally question which aggregate is a better measure on which to focus in conducting monetary policy.
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