The Federal Reserve has proposed a change in its method of administering the discount window. This paper looks at the effects of this proposal on monetary control and on the money markets, assuming that banks base their behavior on profit maximization over the long run.
First, the reserve supply process is postulated. The conditions under which borrowing from the Federal Reserve will improve or reduce monetary control are stated. Second, the primary reserve adjustment process is formulated to show how primary reserve adjustment can affect rates in the money market. Finally arguments are set forth to show how borrowed reserves would behave if commercial banks are attempting to maximize long run profits and under the discount window administration proposed by the Federal Reserve Committee. The conclusion is that borrowed reserves will behave to reduce money market instability but at the same time they will behave to reduce the Federal Reserve control over the stock of Reserves available to the banking system. Borrowing from the Federal Reserve Bank can be expected to behave in a way of offset Federal Reserve open market operations.
| Identifer | oai:union.ndltd.org:pdx.edu/oai:pdxscholar.library.pdx.edu:open_access_etds-2429 |
| Date | 01 January 1971 |
| Creators | Simantel, David Allen |
| Publisher | PDXScholar |
| Source Sets | Portland State University |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | Dissertations and Theses |
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