Abstract
This paper examines the dynamic stability of a situation in which monetary policy is implemented by means of short‐run control of interest rates. Using a simple dynamic model it is shown that such procedures may lead to instability unless the central bank allows the controlled interest rate to adjust sufficiently to economic developments. The theoretical model is then used to guide an empirical examination and evaluation of Federal Reserve behavior for the period 1969–1979. Evidence is presented that on average over this period the Federal Reserve's control of the Federal funds rate could have been a destabilizing factor.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
