Abstract
This paper presents new empirical tests of alternative hypotheses of Federal Reserve behavior from 1924 to 1933. The Fed used open-market operations in government securities to smooth economic fluctuations, to limit stock market speculation, and to assist Great Britain to return to the gold standard. However, this study finds that during the 1920s open-market operations did not affect the volume of Federal Reserve Credit outstanding. The Fed seems to have continued to use this ineffective strategy during the depression, which can account for its failure to respond vigorously to the economic downturn.
Published Version
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