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Federal reserve policy viewed through a money supply lens

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  • Chowdhury, Ibrahim
  • Schabert, Andreas

Abstract

Federal Reserve nonborrowed reserve supply systematically responded to changes in inflation and in the output gap over the period 1969-2000. While the feedback from output gap is always negative, the response of money supply to changes in inflation varies considerably across time. Nonborrowed reserves decreased with inflation in the post-1979 period and increased in the pre-1979 period. Applying a standard macro-model, the estimated reaction functions are shown to ensure equilibrium determinacy. Viewed through the money supply lens, Federal Reserve policy substantially changed over time, but has never allowed for endogenous fluctuations, which contrasts conclusions drawn from federal funds rate analyses.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 4 (May)
Pages: 825-834

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Handle: RePEc:eee:moneco:v:55:y:2008:i:4:p:825-834

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Web page: http://www.elsevier.com/locate/inca/505566

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Citations

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Cited by:
  1. Woon Gyu Choi & Yi Wen, 2010. "Dissecting Taylor Rules in a Structural VAR," IMF Working Papers 10/20, International Monetary Fund.
  2. Ceri Davies & Max Gillman & Michal Kejak, 2012. "Deriving the Taylor Principle when the Central Bank Supplies Money," IEHAS Discussion Papers 1225, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Thomas J. Sargent & Paolo Surico, 2011. "Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals," American Economic Review, American Economic Association, vol. 101(1), pages 109-28, February.
  4. McNown, Robert & Seip, Knut Lehre, 2011. "Periods and structural breaks in US economic history 1959-2007," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 169-182, March.
  5. Carrera, César, 2012. "Políticas de Encajes y Modelos Económicos," Working Papers 2012-006, Banco Central de Reserva del Perú.
  6. Schabert, Andreas, 2009. "Money supply, macroeconomic stability, and the implementation of interest rate targets," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 333-344, June.

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