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On Thu, 30 Mar 2000, Rakesh Bhandari wrote:
> The economist Wallis refers to the abandonment of the
> Federal Reserve Bank's policy of accomodating federal debt
> issues in the late 1970s. Would someone kindly tell me what
> that policy was and how it worked exactly? Is this a
> reference to the monetization of the federal govt's
> debt--and how did that work?
I presume Wallis is talking about the change in the Fed's
procedures with Fed chairman Volcker's "monetarist experiment".
Prior to that the Fed had mostly aimed to stabilize interest
rates around some target level. This implied that if government
debt issues tended to raise interest rates, the Fed would
respond with open-market operations to increase money stock and
prevent (or at least damp) the rise in rates. Under Volcker the
Fed (briefly, in historical perspective) gave up any effort to
stabilize interest rates and instead focussed on achieving a
given target rate of growth of money stock.
Allin.
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