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FOMC Targets, Base Drift and Inflationary Expectations

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  • Charles E. Hegji

    (Auburn University)

Abstract

This paper uses a money supply-money demand model to study the effects on inflationary expectations of base drift and the Federal Open Market Committee's rebasing of its money supply targets. It is demonstrated that an averaging scheme for determining the Federal Open Market Committee's money stock target bases generates less inflationary uncertainty than no averaging. It is also shown that an alternative to target averaging is to accommodate long-run money supply strategy to changes in money demand. The accommodation of the money supply targets to changes in the demand for money is also shown to be characteristic of target rebasing.

Suggested Citation

  • Charles E. Hegji, 1989. "FOMC Targets, Base Drift and Inflationary Expectations," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 45-54, Jan-Mar.
    • Handle: RePEc:eej:eeconj:v:15:y:1989:i:1:p:45-54
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume15/V15N1P45_54.pdf
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    References listed on IDEAS

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