Reconciling Bagehot with the Fed's response to September 11
By: Antoine Martin.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 217; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 217.
Publisher: Federal Reserve Bank of New York
Published: 2005
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Money supply -- Mathematical models.; Financial crises.; Liquidity (Economics); Bank reserves.; Federal funds market (United States); Monetary policy -- United States.
Description: "The nineteenth-century economist Walter Bagehot maintained that in order to prevent bank panics a central bank should provide liquidity to the market at a very high rate of interest. This recommendation seems to be in sharp contrast with the policy adopted by the Federal Reserve after September 11 when, for a few days, the federal funds rate was very close to zero. This paper shows that Bagehot's recommendation can be reconciled with the Fed's policy if one recognizes that Bagehot had in mind a commodity money regime in which the amount of reserves available is limited.  A high price for this liquidity allows banks that need it most to self-select. In contrast, the Fed has the virtually unlimited ability to temporarily expand the money supply"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 9/7/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.