This publication primarily presents economic research ai med at improving policymaking by the Federal Reserve System and other governmental authorities.

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The Federal Reserve System was established in 1913 to provide an elastic currency, discount commercial credit, and supervise the banking system in the United States. Congress changed those purposes somewhat with the Employment Act of 1946 and the Full Employment and Balanced Growth Act of 1978. In these acts, Congress instructed the Federal Reserve to "maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates" (FR Board 1990, p. 6). Implicit in these instructions from Congress is the assumption that the Fed has the ability, through its monetary policy, to control these economic variables. Does it? Clearly, it does have a measure of control over some definitions of money. But the links between money and the other economic variables have yet to be conclusively established. The facts about those links can help determine how well the Fed can do its job. The purpose of this study is to improve upon past attempts to determine what the facts are. A central bank's major instrument of monetary policy is the growth rate of the money supply, targeted either directly or indirectly through some nominal target like an interest rate or the exchange rate for the country's currency. Different central banks choose to adjust different definitions of money, whichever they deem appropriate for their direct instrument. The target for price stability is typically

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