Monetary Policy Rules and Financial Stability / Bennett T. McCallum.

By:

McCallum, Bennett T

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4692.Publication details: Cambridge, Mass. National Bureau of Economic Research 1994.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper investigates empirically the possibility that a central bank could adhere to a macro-oriented monetary policy rule while also providing lender-of-last-resort services to the financial system. The method considered involves smoothing week-to-week movements of an interest rate instrument so as to achieve quarterly- average intermediate targets for the monetary base, with these specified so as to keep aggregate nominal spending growing steadily at a noninflationary rate. Simulations utilizing weekly U.S. data are conducted with a system consisting of a policy rule for the federal funds rate--one designed to hit monetary base targets obtained from a quarterly macroeconomic rule--and an empirically-based model of the response of base growth to funds rate movements. Results for the periods 1974-1979 (Sept.) and 1988-1991 suggest that such a procedure could succeed in reconciling macroeconomic goals with the provision of lender-of-last-resort services.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w4692 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

April 1994.

This paper investigates empirically the possibility that a central bank could adhere to a macro-oriented monetary policy rule while also providing lender-of-last-resort services to the financial system. The method considered involves smoothing week-to-week movements of an interest rate instrument so as to achieve quarterly- average intermediate targets for the monetary base, with these specified so as to keep aggregate nominal spending growing steadily at a noninflationary rate. Simulations utilizing weekly U.S. data are conducted with a system consisting of a policy rule for the federal funds rate--one designed to hit monetary base targets obtained from a quarterly macroeconomic rule--and an empirically-based model of the response of base growth to funds rate movements. Results for the periods 1974-1979 (Sept.) and 1988-1991 suggest that such a procedure could succeed in reconciling macroeconomic goals with the provision of lender-of-last-resort services.