Abstract
In this study, we propose a measure of “pressure on bank reserves” that, in addition to the target federal funds rate itself, includes the spread between it and the discount rate and the spread between it and the instantaneous market rate of interest on Treasury securities. We find that these spreads help to explain the magnitudes of target funds rate changes in the years when FOMC directives were phrased in terms of desired pressure. Federal Reserve attention to all components of pressure, including the target-short rate spread, can induce stabilizing expectations on the part of the public and public responses that further Fed aims.
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