USING A PORTFOLIO-STYLE STRUCTURAL MODEL OF THE SUPPLY OF MONEY TO ANALYZE THE FEDERAL RESERVE'S OCTOBER 1979 TECHNICAL OPERATING PROCEDURES (MONETARY THEORY, BANKING)

In October 1979, the Federal Reserve System moved its policy regime away from interest rates and toward a reserve-based operating procedure. This change in monetary policy implementation has greatly influenced the path of economic activity and the domestic economy during the early 1980's. In this thesis, a structural model of the supply of money is presented which can be used to analyze this period of monetary targeting, while the reserve operating target is made endogenous.;Because the behavior of the policy authorities was very important during this historical period, Federal Reserve targeting behavior is described. Next, a reaction function for the targeted reserve component is specified and estimated.;The complete structural model including the reaction function is estimated by two-stage least-squares. These results are then used to validate the behavior of the model through both static and dynamic simulation. Lastly, two policy simulations are undertaken which demonstrate how the stock of money in a portfolio-style model is effected by changes in income.;The thesis begins by reviewing traditional research on the determination of the stock of money. After discussing demand-side and multiplier views of this process, a structural, supply-side view is suggested which can utilize the pitfalls relationships. These relationships in turn can be applied to the portfolio of the commercial banking sector. A complete structural model along these lines is then described and estimated.