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Federal Reserve Policy viewed through a Money Supply Loss

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Author Info
Ibrahim Chowdhury (Swiss National Bank)
Andreas Schabert () (University of Dortmund, University of Amsterdam)

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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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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-023/2.

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Date of creation: 06 Mar 2008
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Handle: RePEc:dgr:uvatin:20080023

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Related research
Keywords: Money supply; reaction functions; nonborrowed reserves; real-time data; equilibrium determinacy;

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Find related papers by JEL classification:
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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