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

Format:

Book

Author/Creator:

McCallum, Bennett T.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4692.

NBER working paper series no. w4692

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

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.

Notes:

Print version record

April 1994.