McCallum, Bennett T. <br/><br/>
Monetary Policy Rules and Financial Stability / 
Bennett T. McCallum. 
 - Cambridge, Mass.  National Bureau of Economic Research  1994. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w4692 .
 - Working Paper Series (National Bureau of Economic Research)  no. w4692. .
<br/><br/> April 1994. 
<br/><br/> 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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