The relationship between growth of the monetary aggregates and growth of nominal GNP has become less dependable in the 1980s. Deposit deregulation and large fluctuations in interest rates have produced sharp changes in the income velocity of money. These velocity shifts have, at times, caused the Federal Reserve to miss or modify its money growth ranges. Because of the undependable relationship between money growth and economic activity, some policymakers and economic analysts have argued that the Federal Reserve should pay more attention to commodity price fluctuations. This paper examines the proper role for commodity prices in the formation of monetary policy.
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