Modelling Federal Reserve Discount Policy

Christopher Baum and Meral Karasulu ()
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Meral Karasulu: Bogazici University

No 335., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We employ threshold cointegration methodology to model the policy problem solved by the Federal Reserve System in their manipulation of the discount rate under a reserves target operating procedure utilized since October 1979. The infrequent and discrete adjustments that characterize movements in the discount rate instrument vis-a- vis the Federal Funds rate do not lend themselves to a linear cointegration framework. The inherently nonlinear relationship arising from the Fed's self-imposed constraints on discontinuously changing the discount rate is satisfactorily modelled as an instance of threshold cointegration between the discount rate and the Federal Funds rate.

Keywords: Monetary policy; discount rate; Fed; threshold cointegration (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1996-01-01
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Citations: View citations in EconPapers (2)

Published, Computational Economics, 11, 53-70, 1998.

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Journal Article: Modelling Federal Reserve Discount Policy (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:335

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