The Federal Funds Rate and the Channels of Monetary Transnission

Ben Bernanke

NBER Working Paper No. 3487
Issued in October 1990
NBER Program(s):Economic Fluctuations and Growth Program, Monetary Economics Program

First, we show that the interest rate on Federal funds is extremely informative about future movements of real macroeconomic variables, more so than monetary aggregates or other interest rates. Next, we argue that the reason for this forecasting is that the funds rate sensitively records shocks to the supply of (not the demand for) bank reserves, i.e. the funds rate is a good indicator of monetary policy actions. Finally, using innovations to the fuels rate as a measure of changes in monetary policy, we present evidence consistent with the view that monetary policy works at least in part through "credit" (that is, bank loans) as well as through "money" (that is, bank deposits) - even though bank loans fail to Granger-cause real variables.

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Document Object Identifier (DOI): 10.3386/w3487

Published: American Economic Review Volume 84, No. 4, pp. 901-921 September 1992 citation courtesy of

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