A Weekly Rational Expectations Model of the Nonborrowed Reserve Operating Procedure

Abstract

Of the many studies analyzing the Federal Reserve’s post-October 6, 1979 nonborrowed reserve (NBR) operating procedure, none has focused on weekly money market dynamics under rational expectations. This paper employs the rational expectations assumption in an explicit institutional model of the NBR procedure. The analysis is positive rather than normative, isolating the policy elements that comprise the procedure and investigating their dynamic interaction.

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