This paper considers the implications, for macroeconomic modeling and for monetary policy, of the interrelationships among money, credit and nonfinancial economic activity. Data for the United States since World War II show that the volume of outstanding credit is as closely related to economic activity as is the stock of money, and moreover that neither money nor credit is sufficient to account fully for the effect of financial markets in determining real economic activity. Instead, what appears to matter is an interaction between money and credit. This result is consistent with a macroeconomic modeling strategy that deals explicitly with both the money market and the credit market, and with a monetary policy framework based on the joint use of a money growth target and a credit growth target.
Published as Friedman, Benjamin M. "The Roles of Money and Credit in Macroeconomic Analysis." Macroeconomics, Prices, and Quantities, edited by James Tobin. Washingtion, D.C.: The Brookings Institution, (1983), pp. 161-199.