IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0650.html
   My bibliography  Save this paper

Some Theoretical Aspects of Base Control

Author

Listed:
  • Charles Freedman

Abstract

This paper focuses on the implications of using the monetary base or bank reserves as an instrument to control a monetary aggregate. Following analysis of a series of theoretical models of increasing complexity, it is concluded that in a system with either institutional or structural lags base control may entail very sharp and possibly undamped oscillations of short-term interest rates. The shorter the time period over which the authorities choose to bring the monetary aggregate back to its target, the more volatile will be the movements of interest rates. Furthermore, there is an asymmetry in the U.S. institutional structure such that rigid implementation of the base control system will under certain circumstances lead to a decline in short-term interest rates to very low levels. The final section of the paper is devoted to the examination of the Canadian institutional structure emphasizing the differences between the U.S. and Canadian systems.

Suggested Citation

  • Charles Freedman, 1981. "Some Theoretical Aspects of Base Control," NBER Working Papers 0650, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0650
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0650.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Pesando, James E., 1983. "On expectations, term premiums and the volatility of long-term interest rates," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 467-474, September.
    2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    3. Holbrook, Robert S, 1972. "Optimal Economic Policy and the Problem of Instrument Instability," American Economic Review, American Economic Association, vol. 62(1), pages 57-65, March.
    4. Johannes, James M. & Rasche, Robert H., 1979. "Predicting the money multiplier," Journal of Monetary Economics, Elsevier, vol. 5(3), pages 301-325, July.
    5. Lombra, Raymond & Struble, Frederick, 1979. "Monetary Aggregate Targets and the Volatility of Interest Rates: A Taxonomic Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 284-300, August.
    6. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    7. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    8. Buttler, H. -J. & Gorgerat, J. -F. & Schiltknecht, H. & Schiltknecht, K., 1979. "A multiplier model for controlling the money stock," Journal of Monetary Economics, Elsevier, vol. 5(3), pages 327-341, July.
    9. W. R. White, 1979. "Alternative Monetary Targets and Control Instruments in Canada: Criteria for Choice," Canadian Journal of Economics, Canadian Economics Association, vol. 12(4), pages 590-604, November.
    10. Charles Freedman, 1981. "Monetary Aggregates as Targets: Some Theoretical Aspects," NBER Working Papers 0775, National Bureau of Economic Research, Inc.
    11. J. F. Dingle & G. R. Sparks & M. A. Walker, 1972. "Monetary Policy and the Adjustment of Chartered Bank Assets," Canadian Journal of Economics, Canadian Economics Association, vol. 5(4), pages 494-514, November.
    12. William R. White & Stephen S. Poloz, 1980. "Monetary Policy and Chartered Bank Demand Functions for Excess Cash Reserves," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 189-205, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Charles Freedman, 2005. "Reflections on October 6, 1979, and its aftermath," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 317-322.
    2. Benjamin M. Friedman, 1988. "Targets and Instruments of Monetary Policy," NBER Working Papers 2668, National Bureau of Economic Research, Inc.
    3. Charles Freedman, 1981. "Monetary Aggregates as Targets: Some Theoretical Aspects," NBER Working Papers 0775, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0650. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.