Money market strategy or monetary aggregates - analysis of recent federal reserve policy

Abstract

In recent years the critics o f monetary policy have placed increasing emphasis on the need to control monetary aggregates. This emphasis has resulted from what appears to be a bias on the part of the Federal Reserve in favour ofreducing strains in the money-market which in turn causes the Central Bank to lose control over an important aggregate such as the money supply. If the Federal Reserve attempts, say, to meet an expanded demand for bank credit by increasing bank reserves, it reduces pressure on interest rates (and hence the money-market) but may lead to loss of control over money.