American Economic Review Vol. 76 No. 4 1986
In Defense of Base Drift
Abstract
By using the actual money supply as the base for its target ranges, the Federal Reserve impounds past target misses into the level of its new target ranges. This practice of allowing "base drift" has often been criticized. A simple aggregate model is used to derive the optimal degree of base drift. It is shown that some drift will be optimal if income and/or velocity are nonstationary.
- Volume
- 76
- Issue
- 4
- Pages
- 692-700
- Sources
- bibtex:phds-export.bib