The Fiscal Element in Monetary Policy: 1965-68

Abstract

From January, 1965, to December, 1968, the Federal Reserve used a wider range of instruments of monetary policy, and used them more often, than ever before. Reserve ratios and interest-rate ceilings were changed frequently; new distinctions among deposits in terms of reserve requirements and interest-rate ceilings proliferated. Interest-rate ceilings were extended to other financial intermediaries. The method by which reserve requirements were calculated was altered. Rules for the conduct of open market operations were changed. And a new type of what amounted to discountrate policy was used.l In the four years 1965 to 1968, reserve requirements were changed four times; in the preceding four years only two changes were made. The contrast in terms of requirements for time deposits is more striking: four changes for 1965-68 and only one for the eight years preceding 1965. Moreover the changes in reserve requ*ements made from 196>64 had been in the direction of removing diSerentials in reserve requirements. The diSerential on demand deposits between Central Reserve City banks and Reserve City Banks was removed by December, 1960; and the distinction between the two types of banks disappeared in July, 1962. The trend since July, 1966 has been in the opposite direction. A distinction was made between savings deposits and other time deposits. And within each of these categories a further distinction was made on the basis