The Relationship of Money and Income: The Breakdown in the 70s and 80s
The usefulness of the monetary aggregates as intermediate monetary policy targets depends crucially on the relationship between money growth and nominal income growth. The aggregates can function as reliable targets only if the effects of money growth on income are stable enough over time to be forecasted. Serious concern over the stability of this money/income relationship was raised several times in the 1970s and 1980s when velocity, the ratio of nominal GNP to Ml, appeared to deviate. from its trend rate of growth
