Some Theoretical Aspects of Base Control / Charles Freedman.

Format:

Book

Author/Creator:

Freedman, Charles.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0650.

NBER working paper series no. w0650

Language:

English

Subjects (All):

Bank reserves.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1981.

Cambridge : National Bureau of Economic Research, 1981.

Summary:

This paper focuses on the implications of using the monetary base or bank reserves as an instrument to control a monetary aggregate. Following analysis of a series of theoretical models of increasing complexity, it is concluded that in a system with either institutional or structural lags base control may entail very sharp and possibly undamped oscillations of short-term interest rates. The shorter the time period over which the authorities choose to bring the monetary aggregate back to its target, the more volatile will be the movements of interest rates. Furthermore, there is an asymmetry in the U.S. institutional structure such that rigid implementation of the base control system will under certain circumstances lead to a decline in short-term interest rates to very low levels. The final section of the paper is devoted to the examination of the Canadian institutional structure emphasizing the differences between the U.S. and Canadian systems.

Notes:

Print version record

March 1981.