The 1979–1982 Monetary Policy Experiment: Monetarist, Anti-Monetarist, or Quasi-Monetarist?

To gain greater monetary control, the US Federal Reserve experimented with a nonborrowed reserve operating procedure from October 1979 through September 1982. Although at the time this was widely regarded as a test of monetarism, many monetarists have since argued that this period was nothing of the sort. It is argued that whether this period was a fair test of monetarism depends to a large extent on how one defines monetarism. This issue is addressed by first producing a statistical summary of the money growth targets over the 1975 to 1987 period. This evidence suggests that if one defines monetarism as a strict adherence to a constant money growth rule, then there is little doubt that the 1979-1982 period was not a valid test of monetarism. These money growth targets are then employed in a monetary policy reaction function, and it was found that the Federal Reserve adjusted its policy instrument only in response to money growth errors.