Publication Date

7-1-1994

Degree Program

Department of Economics

Degree Type

Master of Arts

Abstract

The purpose of this thesis is to examine the period between the fourth quarter of 1979 through the third quarter of 1982 with respect to Federal Reserve policy. This period is known as the "Monetarist Experiment" because the Federal Reserve announced that it would be adopting monetarist principles in the implementation of its policy. Supporters of monetarism claim that this was not a true monetarist experiment because the Federal Reserve implemented policy incorrectly. Using statistical and time-series regression analyses, I address this question and conclude that the "Monetarist Experiment" was nothing of the kind. Federal Reserve policy never actually changed and monetary aggregates were not affected according to the principles of monetarism. Furthermore, using regression techniques, I conduct a simulation experiment using growth rates for the money supply which are more in line with monetarist philosophies. The resulting GNP growth rates are much smoother and steadier over time. Had monetarism been tried, rather than the chaotic money supply fluctuations that characterized the period, we would likely have seen an economy characterized by greater stability.

Disciplines

Economics

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