TY  - JOUR
AU  - McCallum,Bennett T.
AU  - Hoehn,James G.
TI  - Money Stock Control with Reserve and Interest Rate Instruments Under Rational Expectations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 893
PY  - 1982
Y2  - May 1982
UR  - http://www.nber.org/papers/w0893
L1  - http://www.nber.org/papers/w0893.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu
AB  - This paper conducts a theoretical comparison of the potential effectiveness, in terms of money stock controllability, of interest rate and reserve instruments. Whereas previous studies have been basically static, the present analysis is carried out in the context of a dynamic macroeconomic model with rational expectations. Particular attention is paid to the distinction between contemporaneous and lagged reserve accounting (CRA and LRA). The criterion employed is the expectation of squared deviations of the (log of the) money stock from target values that are reset each period. Analysis in the basic model suggests the following substantive conclusions. (1) With a reserve instrument, monetary control will be more effective under CRA than LRA. (2) With a reserve instrument and LRA, control will be poorer than with an interest rate instrument. (3) For a wide range of parameter values, control will be better with a reserve instrument and CRA than with an interest rate instrument.
ER  -