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A revised measure of the St. Louis adjusted monetary base

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  • Richard G. Anderson
  • Robert H. Rasche

Abstract

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.

Suggested Citation

  • Richard G. Anderson & Robert H. Rasche, 1996. "A revised measure of the St. Louis adjusted monetary base," Working Papers 1996-004, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1996-004
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    5. 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 261-280.
    6. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-381, April.
    7. 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.
    8. 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.
    9. Neil Wallace, 1977. "Why the Fed should consider holding M0 constant," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 1(Sum).
    10. 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.
    11. 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.
    12. R. Alton Gilbert, 1980. "Revision of the St. Louis Federal Reserve’s adjusted monetary base," Review, Federal Reserve Bank of St. Louis, vol. 62(Dec), pages 3-10.
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    Cited by:

    1. Donald S. Allen, 1998. "How closely do banks manage vault cash?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 43-54.
    2. Richard G. Anderson & Robert H. Rasche, 1999. "Eighty years of observations on the adjusted monetary base: 1918-1997," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-22.
    3. William R. Emmons, 1999. "What can \"buy-and-hold\" stock investors expect?," Monetary Trends, Federal Reserve Bank of St. Louis, issue Jun.
    4. William T. Gavin & Finn E. Kydland, 2000. "The nominal facts and the October 1979 policy change," Review, Federal Reserve Bank of St. Louis, vol. 82(Nov), pages 39-61.
    5. William A. Barnett, 2000. "Which Road Leads to Stable Money Demand?," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 577-592, Emerald Group Publishing Limited.
    6. Michael J. Dueker, 1999. "A barometer of financial market uncertainty," Monetary Trends, Federal Reserve Bank of St. Louis, issue May.
    7. Frank A. Schmid, 1999. "Quality spreads in the bond market," Monetary Trends, Federal Reserve Bank of St. Louis, issue Jul.
    8. R. Alton Gilbert, 1999. "Has the quality of bank loans deteriorated?," Monetary Trends, Federal Reserve Bank of St. Louis, issue Aug.
    9. 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.
    10. William T. Gavin, 2009. "More money: understanding recent changes in the monetary base," Review, Federal Reserve Bank of St. Louis, vol. 91(Mar), pages 49-60.

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