| Sumario: | In this paper we show that accurate money stock control is possible only under assumptions about the form of the money demand function which are probably not satisfied empirically. It follows that, while somewhat more accurate monetary control would be possible if the Federal Reserve were willing to countenance greater variation in interest rates, substantially constant rates of monetary expansion cannot be achieved. <BR> The monetary control theory just presented allows determination of the conditions under which accurate control of the money stock is possible, and therefore under which the criticisms of the Federal Reserve alluded to in the introduction may be justified.[11] Our principal result is that under lagged reserve accounting these conditions relate exclusively to the form of the money demand function. The money stock can be accurately controlled without excessive volatility in interest rates to the extent that the money demand equation (1) has a relatively high interest rate elasticity, (2) implies that there is little or no lag between interest rate changes and the consequent variations in money demand, (3) has a low error variance, and (4) can be reliably estimated empirically. To the extent that these conditions fail, on the other hand, monetary control can be achieved only at the cost of substantial interest rate volatility, or not at all.
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