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Even keel and the Great Inflation

  • Owen F. Humpage
  • Sanchita Mukherjee

Using IV-GMM techniques and real-time data, we estimate a forward looking, Taylor-type reaction function incorporating dummy variables for even-keel operations and a variable for foreign official pressures on the U.S. gold stock during the Great Inflation.We show that when the Federal Reserve undertook even-keel operations to assist U.S. Treasury security sales, the FOMC tended to delay monetary-policy adjustments and to inject small amounts of reserves into the banking system.The operations, however, did not contribute significantly to the Great Inflation, because they occurred during periods of both monetary ease and monetary tightness, at least in the FOMC’s view.Consequently, the average federal funds rate during months containing even-keel events was no different than the average federal funds rate in other months, suggesting that even keel had no effect on the thrust of monetary policy.We also show that prospective gold losses had no effect on the FOMC’s monetary-policy decisions in the 1960s and early 1970s.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1315.

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Date of creation: 2013
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Handle: RePEc:fip:fedcwp:1315
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  1. Michael D. Bordo & Athanasios Orphanides, 2013. "The Great Inflation: The Rebirth of Modern Central Banking," NBER Books, National Bureau of Economic Research, Inc, number bord08-1, January.
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  13. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
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  16. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
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  18. B. Dianne Pauls, 1990. "U.S. exchange rate policy: Bretton Woods to present," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 891-908.
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