FOMC Targets, Base Drift and Inflationary Expectations
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.
Volume (Year): 15 (1989)
Issue (Month): 1 (Jan-Mar)
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- Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
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- V. Vance Roley, 1982. "Weekly money supply announcements and the volatility of short-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Apr, pages 3-15.
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- Richard G. Sheehan, 1985. "Weekly money announcements: new information and its effects," Review, Federal Reserve Bank of St. Louis, issue Aug, pages 25-34.
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- William Poole, 1976. "Interpreting the Fed's Monetary Targets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 247-260.
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