Money Market Impacts of Alternative Operating Procedures

This paper, written for a Federal Reserve Staff Review of Monetary Control Procedures, explores the short-run volatility consequences of money stock targeting procedures under current (1981) alternative operating procedures. Conclusions include: the odds are at least two to one that a portion of the increased money market volatility observed in 1980 cannot be ascribed solely to current operating procedures. Further there exists a well-behaved trade-off between the volatility of money stock targeting performance and the volatility of short-term rates in that the performance of one objective can be exchanged for a bounded deterioration in the performance of the other. Interest rate and reserves policies are more successful in attaining year-over-year money stock targets than in maintaining close adherence to a money stock target path within the year