DID MONETARISM DIE IN THE 1980S

The close correlation between the monetary aggregates and many measure s of economic activity appear to have broken down during the 1980s. In deed, most simple correlations between the M1 definition of money and inflation are of opposite signs during the 1980s from those of the 196 0-1979 time period. However, if the determinants of money demand, wide ly discussed during the 1950s, are taken into account, then the money to economic activity relationship remains very strong and significant during the 1980s. In this regard, monetary policy seems to have become significantly more contracyclical in recent years, and this accounts for much of the different simple correlations in the 1980s from the ea rlier post-World War II periods.