Discount Window Borrowing and Federal Reserve Operating Regimes

The author finds empirical evidence that bank borrowing behavior at the discount window changed when the Federal Reserve changed its short-run operating procedures and reserve accounting rules. Under narrow Federal funds rate targeting (1975-79), the spread between the funds rate and the discount rate was relatively predictable and borrowing was very sensitive to the spread. Under nonborrowed reserves targeting (1979-82), the spread became more volatile and less predictable, and borrowing became significantly less sensitive to the spread. With the switch to contemporaneous reserve accounting under borrowed reserves targeting in 1984, borrowing became even less sensitive to the spread. Copyright 1993 by Oxford University Press.