“Unconventional” Monetary Policy as Conventional Monetary Policy: A Perspective from the U.S. In the 1920s

45 Pages Posted: 6 Jun 2018

See all articles by Mark A. Carlson

Mark A. Carlson

Board of Governors of the Federal Reserve System

Burcu Duygan-Bump

Federal Reserve Board

Date Written: 2018-03-09

Abstract

To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Fed was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. Moreover, our results suggest that the transmission of monetary policy to money markets occurred not just through changing the supply of reserves but importantly through financial market arbitrage and the rebalancing of investor portfolios. The tools used in the 1920s by the Federal Reserve resemble the extraordinary monetary policy tools used by central banks recently and provide further evidence on their effectiveness even in ordinary times.

Keywords: Monetary policy, Unconventional monetary policy, Central banking, Administered rates, Money markets, Quantitative easing

JEL Classification: E52, E58, N22

Suggested Citation

Carlson, Mark A. and Duygan-Bump, Burcu, “Unconventional” Monetary Policy as Conventional Monetary Policy: A Perspective from the U.S. In the 1920s (2018-03-09). FEDS Working Paper No. 2018-019. Available at SSRN: https://ssrn.com/abstract=3187670 or http://dx.doi.org/10.17016/FEDS.2018.019

Mark A. Carlson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 452-3987 (Phone)
(202) 452-2301 (Fax)

Burcu Duygan-Bump

Federal Reserve Board ( email )

20th and C Streets, N.W.
Washington, DC 20551
United States
2029124663 (Phone)

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