Working Paper: NBER ID: w3380
Authors: Barry Eichengreen; Peter Garber
Abstract: Thia paper analyzes U.S. monetary-financial policy in the period leading up to the Treasury-Fed Accord. We model policy as an implicit target zone for the price level and an explicit zone for interest rates, and the difficulties on the eve of the Accord as an incipient run on a collapsing target-zone regime. The regime was implemented to maintain the stability of the financial system in a period when there was a serious maturity mismatch between the assets and liabilities of the banking system.
Keywords: Monetary Policy; Financial Stability; Target Zones
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Commitment to implicit target zone for price level (E61) | Stabilization of financial system (G28) |
| Commitment to explicit target zone for interest rates (E43) | Stabilization of financial system (G28) |
| Perceived threats to financial stability (F65) | Policymakers' interventions (D78) |
| Inflation volatility and interest rate fluctuations (E31) | Policymakers' interventions (D78) |
| Evolving economic conditions (N12) | Decisions made by monetary authorities (E52) |
| Shift in concern from stabilizing interest rates to addressing wartime economic needs (E63) | Abandonment of earlier policies by the Federal Reserve (E52) |