Federal Reserve Policy Viewed Through a Money Supply Lens

Tinbergen Institute Discussion Paper No. TI 2008-023/2

28 Pages Posted: 25 Mar 2008

See all articles by Andreas Schabert

Andreas Schabert

University of Cologne - Department of Economics; University of Dortmund; University of Amsterdam - Faculty of Economics and Business

Ibrahim Chowdhury

affiliation not provided to SSRN

Date Written: March 2008

Abstract

Federal Reserve nonborrowed reserve supply systematically responded to changes in inflation and in the output gap over the period 1969-2000. While the feedback from output gap is always negative, the response of money supply to changes in inflation varies considerably across time. Nonborrowed reserves decreased with inflation in the post-1979 period and increased in the pre-1979 period. Applying a standard macro-model, the estimated reaction functions are shown to ensure equilibrium determinacy. Viewed through the money supply lens, Federal Reserve policy substantially changed over time, but has never allowed for endogenous fluctuations, which contrasts conclusions drawn from federal funds rate analyses.

Keywords: Money supply, reaction functions, nonborrowed reserves, real-time data, equilibrium determinacy

JEL Classification: E51, E52, E32

Suggested Citation

Schabert, Andreas and Chowdhury, Ibrahim, Federal Reserve Policy Viewed Through a Money Supply Lens (March 2008). Available at SSRN: https://ssrn.com/abstract=1113006 or http://dx.doi.org/10.2139/ssrn.1113006

Andreas Schabert (Contact Author)

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

University of Dortmund ( email )

Vogelpothsweg 87
Dortmund, 44227
Germany
+49 231 755 3288 (Phone)

University of Amsterdam - Faculty of Economics and Business ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Ibrahim Chowdhury

affiliation not provided to SSRN

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