Risk and Federal Reserve Action and Monetary Growth
The risk premium has risen sharply in the nation's financial markets. This is the message to be drawn from the significant rise in interest rates in recent days -- notwithstanding a stagnant economy, slowing inflation, and credit demands which, overall, are only moderate. The economy is clearly moving sideways...Over the past one and one-half years, the short-run growth rate of the money supply (defined as M-1B, not adjusted for shifts into NOW accounts) has averaged within about one percentage point of that of the monetary base. Moreover, the bulk of the variance in the linkage between these key variables is accounted for by transitory shifts in the relationship between the public's holdings of cash and its holdings of demand deposits. These are the key findings to emerge from Morgan Stanley's most recent analysis of actions by the Federal Reserve (measured by changes in the monetary base) and movements in the money supply.
Authors: | Heinemann, H. Erich |
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Publisher: |
William E. Simon Graduate School of Business Administration, University of Rochester |
Subject: | economic policy | Federal Reserve Board | monetary policy | risk premium |
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