Abstract
This paper examines the factual and logical bases underlying recent proposals that the Federal Reserve should reduce the attention it attaches to the monetary aggregates and finds these arguments seriously lacking on both counts. By and large the case against the aggregates rests on the finding that some money demand functions have experienced serious difficulties in explaining recent developments. Our results suggest that the problem is not due so much to the instability in the public's asset preferences but rather to the restrictive specifications of the functions employed. Moreover, it is shown that even if the demand function for money has become less predictable, this is not sufficient to justify a reduction in the attention devoted to the aggregates. Finally, we examine the recent performance of a modified version of the St. Louis reduced-form equation for nominal income and find that the relationship that it incorporates between the growth in money and the growth in GNP has remained remarkably stable.
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