Federal Reserve Defensive Operations and Short-Run Control of the Money Stock.

Recent studies of money-supply determination have led to conclusions that the Federal Reserve through its open-market transactions can control certain variables which are closely related to the money stock. These variables are high-powered money, the monetary base, total reserves and Federal Reserve holdings of government securities. This article investigates the question of how effective the Federal Reserve might be in controlling these variables, and hence money, in the short run, in view of strong seasonal and irregular forces impinging on each. The results of this study lead to the conclusion that the defensive operations of the Federal Reserve have been quite successful with regard to offsetting seasonal-irregular movements in free reserves and total reserves, despite attention given to other short-run guides. This gives support to the proposition that the System could also control to a high degree short- run movements in high-powered money and the monetary base and, hence, in the money stock.