ABSTRACT
The half-decade running from mid-1982 to mid-1987 was a pretty good era for US monetary policy, as these things go. The recovery that ensued developed into a sustained expansion that continued without interruption through the end of 1987, thereby setting a new record for the longest recorded business expansion in US peacetime experience. In the eyes of many economists, the Federal Reserve System has been steering without a rudder ever since it effectively abandoned its commitment to monetary growth targets in 1982. The immediate motivation underlying this dramatic move was the rapidly deteriorating inflation situation, together with growing concerns about the dollar exchange rate. The effects of the new combination of policy strategy and policy tactics implemented in October 1979 were immediately visible, and they continued to be so for the next several years, although in some aspects they ran counter to the new policy’s declared intent.
