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"Unconventional" Monetary Policy as Conventional Monetary Policy: A Perspective from the United States in the 1920s

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Listed:
  • Mark Carlson

    (Federal Reserve Board)

  • Burcu Duygan-Bump

    (Federal Reserve Board)

Abstract

To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Federal Reserve was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. Moreover, our results suggest that the transmission of monetary policy to money markets occurred not just through changing the supply of reserves but, importantly, through financial market arbitrage and the rebalancing of investor portfolios. The tools used in the 1920s by the Federal Reserve resemble the extraordinary monetary policy tools used by central banks recently and provide further evidence on their effectiveness even in ordinary times.

Suggested Citation

  • Mark Carlson & Burcu Duygan-Bump, 2021. ""Unconventional" Monetary Policy as Conventional Monetary Policy: A Perspective from the United States in the 1920s," International Journal of Central Banking, International Journal of Central Banking, vol. 17(2), pages 207-253, June.
    • Handle: RePEc:ijc:ijcjou:y:2021:q:2:a:6
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    References listed on IDEAS

    as
    1. Michael D. Bordo & Arunima Sinha, 2016. "A Lesson from the Great Depression that the Fed Might Have Learned: A Comparison of the 1932 Open Market Purchases with Quantitative Easing," Economics Working Papers 16113, Hoover Institution, Stanford University.
    2. Carlo Altavilla & Giacomo Carboni & Roberto Motto, 2021. "Asset Purchase Programs and Financial Markets: Lessons from the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-48, October.
    3. Bordo,Michael D. & Roberds,William (ed.), 2013. "The Origins, History, and Future of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9781107013728.
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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