Orientierungspunkte der Geldpolitik

Abstract

Orientation Points for Monetary Policy

The debate on monetary policy has passed rapidly and lightly over the spectacular successes in combatting inflation in important countries. The new central theme is the “too high real interest rates” and the contribution monetary policy can make towards lowering them. In view of such fluctuating moods, the essay sets out to seek a firm footing for the orientation of monetary policy, i.e. to gauge what knowledge has established and enduring significance for monetary policy and what has not. It is argued that the difficulties with certain intermediate objectives cannot be overcome by using instead a “final objective”, e.g. the nominal national product, as an orientation point for monetary policy. The money supply has no real competitor as an intermediate objective; at best, it might be worthwhile to discuss the extent to which other intermediate goals (subordinate to the money supply) could be aimed at in addition. It has proved, however, that there is mostly very little latitude for that. At least for the Federal Republic of Germany, innovations on the financial markets are not considered an obstacle to money supply orientation which, as a defensive strategy, primarily attempts to avoid mistakes and does not take it upon itself to exert ideal control over the economy. In this connection, doubts are expressed and justified with respect to the usefulness of the conventional money demand functions. Finally, the practical problems of money supply control and and the accuracy of objectives are dealt with. Here the main interest is focused on the subject of “monetary base control”, which is the subject of hot debate especially in the USA and from time to time in Britain, but has not been really mentally digested in West Germany either up to the present