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October 27, 2005

Why Oh Why Can't We Have a Better Press Corps?

I really cannot stand it any more.

A correspondent sends me Victor Canto on Ben Bernanke at National Review:

Victor A. Canto on Ben Bernanke and the Price Rule on NRO Financial: In the cases where central banks have performed well, an explicit price-rule mandate has been in effect. The domestic version of this rule targets domestic inflation, and the international rule targets the exchange rate.... In October of 1979, then-Fed chairman Paul Volker changed the central bank’s operating procedure. The Fed abandoned its targeting of monetary aggregates, and switched, in my view, to a domestic price rule or an inflation-targeting apparatus. The result was nothing short of spectacular. The inflation rate abruptly declined and more than two decades of relative price stability followed...

Ummm. No. Here's from David E. Lindsey, Athanasios Orphanides, and Robert H. Rasche (2005), "The Reform of October 1979: How It Happened and Why" (Washington: Federal Reserve Board Finance and Economics Discussion Series: Working Paper 2005-2):

Volcker’s nomination enjoyed wide support across the political spectrum, and his confirmation hearing on July 30 [1979] was relatively uneventful. At the hearing Volcker reiterated his well-publicized views in favor of curbing inflation and stressed that “if we’re going to have price stability” it was “indispensable” to bring down the growth of monetary aggregates....

October 6, 1979, Paul Volcker led a change in Federal Reserve operating procedures, and issued a press release:

In characterizing the essence of the new technique, the release noted....

Actions taken are:... 3. A change in the method used to conduct monetary policy to support the objective of containing growth in the monetary aggregates over the remainder of this year within the ranges previously adopted by the Federal Reserve. These ranges are consistent with moderate growth in the aggregates over the months ahead. This action involves placing greater emphasis in day-to-day operations on the supply of bank reserves and less emphasis on confining short-term fluctuations in the federal funds rate.

Then a press conference was scheduled for 6:00 p.m.... [Volcker] indicated that the purpose of the new procedures was to hit the money growth ranges for the current year....

Mr. Volcker. I would emphasize that the broad thrust is to bring monetary expansion and credit expansion within the ranges that were established by the Federal Reserve a year ago...

October of 1979 saw not an abandonment of the Federal Reserve's monetarist targeting of monetary aggregates, but a reinforcement of them: a downweighting of indicators of market prices--interest rates--and an upweighting of indicators of liquidity quantities--the money stock measures.

Canto has it exactly backward.

I'm going to have to go cold turkey. I swear.

Posted by DeLong at October 27, 2005 07:00 PM