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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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    1. Karamouzis, Nicholas & Lombra, Raymond, 1989. "Federal reserve policymaking: an overview and analysis of the policy process," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 30(1), pages 7-62, January.
    2. Walsh, Carl E, 1984. "Interest Rate Volatility and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 133-150, May.
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    4. Dutkowsky, Donald & Foote, William, 1985. "Switching, Aggregation, and the Demand for Borrowed Reserves," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 331-335, May.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    6. Stephen M. Goldfeld & Edward J. Kane, 1966. "The Determinants Of Member‐Bank Borrowing: An Econometric Study," Journal of Finance, American Finance Association, vol. 21(3), pages 499-514, September.
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    8. Spindt, Paul A. & Tarhan, Vefa, 1987. "The Federal Reserve's new operating procedures : A post mortem," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 107-123, January.
    9. Dotsey, Michael, 1989. "Monetary Control under Alternative Operating Procedures," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 273-290, August.
    10. Sprenkle, Case M., 1987. "Liability and asset uncertainty for banks," Journal of Banking & Finance, Elsevier, vol. 11(1), pages 147-159, March.
    11. Santomero, Anthony M, 1983. " Controlling Monetary Aggregates: The Discount Window," Journal of Finance, American Finance Association, vol. 38(3), pages 827-843, June.
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    Cited by:

    1. 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.
    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. 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.
    4. 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.
    5. 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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