Does the Federal Reserve Respond to Errant Money Growth? Evidence from Three Monetary Regimes.

The article refers to the macroeconomic objectives of the U.S. Federal Reserve Board and focuses on corrective actions to errant money growth during the time period of 1975.1 to 1987.8--which involves three monetary policy regimes. The Federal Reserve Board's announced actions and short-run money growth targets are assessed in a reaction function model which considers the dependent variables of the federal funds rate, borrowed reserves, and nonborrowed reserves. The equation includes terms for the producer price index and the industrial production index. Results suggest that a "policy anticipation effect" is related to the "money supply announcement puzzle." Expected inflation, reserve requirement, expected liquidity effect, and real activity effects are mentioned.