How The Decline Came In Monetarism?

Paradoxically just as the monetarists experiment succeeded in rooting inflation out of the American economy perhaps because of the success changes in financial markets led to shifts in behavior that undermined the monetarist approach. The major shift during and after the monetarist experiment lay in the behavior of velocity. Recall that monetarists hold that velocity is relatively stable and predictable. Given stable velocity, changes in the money supply would get smoothly translated into changes in nominal gross domestic product.
But just as the monetarist doctrine was adopted velocity became extremely unstable. Indeed money supply velocity changed more in 1982 than it had in several decades. The high interest rates of this period spurred financial innovations and the spread of interest bearing checking accounts. As a result, velocity became increasingly unstable after 1980. Some believe that the instability in velocity was actually produced by the heavy reliance placed upon monetary policy during this period.
The inability to use the monetary aggregate as beacons for monetary policy has indeed complicated the decisions of central bankers. We address the question of substitutes for a fixed money rule in the post monetarist age.