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Discount Window Borrowing and Federal Reserve Operating Regimes

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  • Pearce, Douglas K

Abstract

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.

Suggested Citation

  • Pearce, Douglas K, 1993. "Discount Window Borrowing and Federal Reserve Operating Regimes," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 564-579, October.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:4:p:564-79
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    Cited by:

    1. Pavon-Prado, David, 2019. "Have we been measuring monetary policy correctly? Analysing the Federal Reserve’s policies over the last century," IFCS - Working Papers in Economic History.WH 28342, Universidad Carlos III de Madrid. Instituto Figuerola.
    2. Artuç, Erhan & Demiralp, Selva, 2010. "Discount window borrowing after 2003: The explicit reduction in implicit costs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 825-833, April.
    3. Kim, Iljoong & Kim, Inbae, 2007. "Endogenous selection of monetary institutions: With the case of discount windows and bureaucratic discretion," International Review of Law and Economics, Elsevier, vol. 27(3), pages 330-350, September.
    4. Pavon-Prado, David, 2022. "The cost of excess reserves and inflation in the United States during the last century," MPRA Paper 112797, University Library of Munich, Germany.
    5. Tanner, J. Ernest & Pescatrice, Donn, 1998. "Was Monetary Policy Impotent or Simply Contracyclical in the 1980s?," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 55-80, January.
    6. Dow, James Jr., 2001. "The Recent Behavior of Adjustment Credit at the Discount Window," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 199-211, April.
    7. Vilasuso, Jon, 1999. "The Liquidity Effect and the Operating Procedure of the Federal Reserve," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 443-461, July.
    8. Dutkowsky, Donald H. & McCoskey, Suzanne K., 2001. "Near integration, bank reluctance, and discount window borrowing," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1013-1036, June.

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