This paper examines the recent evidence on the extent to which the Federal Reserve accommodates Treasury financing activities by effectively monetizing newly issued debt. Various lag and lead formulations are used to determine the timing of FED actions. Results suggest that validation has been significant over the 1960-1980 period, and that, especially in recent periods, the FOMC has responded to capital market pressure which appears in advance of impending debt issues. Finally, we find in the limited number of observations available since October 1979 that there has been no substantive "break" in this accommodative policy despite the Fed's alleged emphasis on monetary aggregates.
ASJC Scopus subject areas
- Economics and Econometrics