Slowing Monetary Growth since 1984: A Public Choice Explanation

Until about 1984, the U.S. monetary base typically grew at an accelerating rate. Since then, that acceleration has stopped. Modern evidence suggests that the Federal Reserve responds to political pressure. We present empirical evidence supporting the hypothesis that reduced monetary base growth reflects the fact that the political advantages of price inflation have been significantly reduced by the tax indexation provisions of the Economic Recovery Tax Act of 1981.