Potential danger of maintaining rigid interest rate target

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Reference no: EM1311537

1. Those who advocate that the Federal Reserve target monetary aggregates usually argue that the Fed should not alter its monetary targets in response to temporary changes in macroeconomic conditions, yet those who advocate interest rate targeting never recommend that the Fed maintain a constant federal funds rate target. Why not? (What's the potential danger of maintaining a rigid interest rate target?)

2. If excessively rapid growth in the money supply is associated with all inflationary episodes, why do central banks ever allow the money supply to increase so rapidly? Is the current Federal Reserve monetary policy in-line with the same notion?

Reference no: EM1311537

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