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A revised measure of the St. Louis adjusted monetary base

  • Richard G. Anderson
  • Robert H. Rasche

The Federal Reserve Bank of St. Louis' adjusted monetary base combines in a single index Federal Reserve actions that affect the supply base money -- open market operations, discount window lending and unsterilized foreign exchange market intervention -- with actions that affect depository institutions' demand for base money -- changes in statutory reserve requirements. The adjusted monetary base equals the sum of the monetary base and a reserve adjustment magnitude (RAM) that maps changes in reserve requirements into equivalent changes in the (unadjusted) monetary base. This paper presents a revised measure of the adjusted total reserves component of the monetary base and a new RAM. The revised measure of the adjusted reserves component differs from the current measure by including the aggregate amount of depository institutions' required clearing balance contracts with the Federal Reserve. The new RAM differs from the current RAM by recognizing that, since the Monetary Control Act of 1980, an increasing number of depository institutions have not significantly changed their demand for base money (vault cash and Federal Reserve deposits) relative to transactions deposits following changes in statutory reserve requirements. The new adjusted reserves data suggest that the stance of monetary policy, measured by the growth rate of adjusted reserves, has been more volatile since 1980 then suggested by the current measure.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1996-004.

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Date of creation: 1996
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Publication status: Published in Federal Reserve Bank of St. Louis Review, March/April 1996, 78(2)
Handle: RePEc:fip:fedlwp:1996-004
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  1. Albert E. Burger & Robert H. Rasche, 1977. "Revision of the monetary base," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 13-28.
  2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  3. Jared Enzler & Lewis Johnson & John Paulus, 1976. "Some Problems of Money Demand," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1), pages 261-282.
  4. R. Alton Gilbert, 1980. "Revision of the St. Louis Federal Reserve’s adjusted monetary base," Review, Federal Reserve Bank of St. Louis, issue Dec, pages 3-10.
  5. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
  6. Anatol Balbach & Albert E. Burger, 1976. "Derivation of the monetary base," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 2-8.
  7. Heidi Willmann Richards, 1995. "Daylight overdraft fees and the Federal Reserve's payment system risk policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1065-1077.
  8. Richard G. Anderson & Robert H. Rasche, 1996. "Measuring the adjusted monetary base in an era of financial change," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-37.
  9. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
  10. Richard G. Anderson & Robert H. Rasche, 1996. "Defining the adjusted monetary base in an era of financial change," Working Papers 1996-014, Federal Reserve Bank of St. Louis.
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