The liquidity effect and the operating procedure of the Federal Reserve

Article Abstract:

An efficient markets model of the liquidity effect was estimated using alternative measures of monetary policy effects. The model was fitted with a time-varying meter specification to capture the liquidity effect when it is under the influence of the operating procedure of the Federal Reserve. The results showed a significant liquidity effect when nonborrowed reserve measure was used to identify monetary policy effects. Interest rates and money shocks were largely independent when broad monetary aggregates were used to represent policy effects.

Interest Rates, Federal Reserve Banks, Monetary Authorities - Central Bank, Liquidity (Finance)

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The design of an interest rate rule with staggered contracting and costly transacting

Article Abstract:

A Keynesian model is used to evaluate the interest rate rule as a monetary policy choice. The model assumes that the players make consumption decisions in the face of the following rigidities: households' need for cash balances and the short-run fall on output caused by changes in nominal aggregate demand. Given these, the central bank can set the short-run nominal interest rate. The stability of such a rule can be guarranteed provided the rate is varied in response to inflation.

Central reserve depository, not elsewhere classified, Central banks, Powers and duties

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The federal funds rate and the arbitrage pricing theory: evidence that monetary policy matters

Article Abstract:

Bernanke and Blinder's hypothesis that the federal funds rate is a good indicator of both monetary policy and real variables is tested using a nonlinear regression technique. The results suggest an inverse relationship between the funds rate and stock prices. The study not only corroborates the above theory, but also supports the view that monetary policy can affect real variables.

Prices and rates, Stocks, Stock prices, Arbitrage, Federal funds market (United States)

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