The Federal Funds Rate and the Channels of Monetary Transnission

57 Pages Posted: 26 Dec 2000 Last revised: 14 Jul 2022

See all articles by Ben S. Bernanke

Ben S. Bernanke

Board of Governors of the Federal Reserve System

Alan S. Blinder

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 1990

Abstract

First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks to the supply of (not the demand for) bank reserves, i.e. the funds rate is a good indicator of monetary policy actions. Finally, using innovations to the fuels rate as a measure of changes in monetary policy, we present evidence consistent with the view that monetary policy works at least in part through "credit" (that is, bank loans) as well as through "money" (that is, bank deposits) - even though bank loans fail to Granger-cause real variables.

Suggested Citation

Bernanke, Ben S. and Blinder, Alan S., The Federal Funds Rate and the Channels of Monetary Transnission (October 1990). NBER Working Paper No. w3487, Available at SSRN: https://ssrn.com/abstract=254522

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Alan S. Blinder

Princeton University - Department of Economics ( email )

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