The behavior of nominal M1, real M1, and the adjusted monetary base in four recessions and three recoveries: 1948-1961

Some Federal Reserve critics regard the System’s response to cyclical disturbances before 1961 as suboptimal inasmuch as the Fed’s operating strategy allegedly fostered procyclical monetary growth. With the exception of Robert Gordon no attempt was made to examine the evidence on the actual behavior of the monetary and reserve aggregates to confront the allegation of procyclical monetary growth. The behavior of three major monetary policy indicators is analyzed-nominal and real M1, and the adjusted monetary base-during four postwar recessions and three recoveries. The evidence reveals no unambiguous procyclical response. Nor do the three different monetary indicators emit unambiguous signals about the thrust of monetary policy. The explanation for these findings are set out in the record of the policy actions as revealed in the official minutes of the Federal Open Market Committee.