Ultimate Goals
Price level stability
Full (i.e., natural rate) employment
Stable e-rates/dollar value
Long-term economic growth

All long-term goals
Intermediate Targets: Criteria
Measurable
Controllable
Important – should contribute to policy goal
Net Free Reserves
Aggregate excess reserves minus discounts and advances
Was thought to be a better target than total reserves
NFR is endogenous – depends on banks’ demand for reserves as well as Fed’s supply of reserves
Short-range Variables
Bank Reserves & MB
Reserves (R)
MB (B = R + CP)
Nonborrowed reserves (R-A)
Nonborrowed base (B-A)
Discounts & advances (A)
Net Free Reserves (NFR)
SR Money Market Yields
Fed Funds Rate
T-bill Rate
Commercial Paper Rate
Bankers’ Acceptance Rate
Intermediate Range Objectives
Monetary Aggregates
M1
M2, M3
Domestic non-financial debt
Bank credit
Intermediate-range Interest Rate Targets
Government bond yield
Corporate bond yield
Mortgage rates
Municipal bond yield

Ultimate Goals
Price level stability
Full (i.e., natural rate) employment
Stable e-rates/dollar value
Long-term economic growth
Keynesian View
Interest rates influence expenditures on consumption, investment, government expenditures, etc.
Interest rates more important than monetary aggregates.
Some Keynesians suggest ignoring M targets.

Monetarist View
Changes in M upset the equilibrium between actual and desired money holdings.
Effect on expenditures is independent of interest rates.
Interest rate, NFR targeting is destabilizing.