Download Competition and Monopoly in the Federal Reserve System, by Mark Toma PDF

Download Competition and Monopoly in the Federal Reserve System, by Mark Toma PDF

By Mark Toma

Many economists view festival between significant banks as resulting in an over-issue of cash. This booklet demanding situations the normal knowledge via displaying that festival between Federal Reserve banks within the Nineteen Twenties didn't bring about an over-issue challenge. the USA Congress imposed a extra monopolistic constitution at the Fed within the mid-1930s in order that it may accomodate a rise within the profit wishes of the Treasury. This publication is exclusive in emphasizing the evolution of the Fed's constitution from a hugely aggressive one to a hugely monopolistic one.

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Additional resources for Competition and Monopoly in the Federal Reserve System, 1914-1951: A Microeconomic Approach to Monetary History (Studies in Macroeconomic History)

Example text

With respect to discount policy, the model predicts a discount rate that equals 6 percent - the prevailing market rate of interest and the rate of return on Fed equity. With respect to interest payments on reserves, the model predicts that reserve banks would impose service charges to cover costs - significant explicit nor implicit interest payments would not be made. On both counts, the model performs reasonably well. 5 The service charge policy was eclectic. At first there was no uniform, systemwide check-clearing policy as reserve banks crafted their own plans and implemented them at various times throughout 1914 and early 1915.

It was not until after World War I, when the straitjacket on reserve banks was relaxed, that reserve banks were able to take advantage of section 16 and provide an elastic currency. The critical preconditions for an elastic currency supply are that reserve banks be subject to a less than 100 percent specie requirement and that the government's financing requirements not be too large. Under these circumstances the exemption from the restriction on currency issue would 40 Interest on reserves and reserve smoothing 41 offer the Fed the opportunity to earn revenue which could be directly passed along to the large member banks and indirectly to the non-member banks via the correspondent system.

4 Do the predictions of the micro model match the policy actually chosen by the Board at the birth of the Fed? With respect to discount policy, the model predicts a discount rate that equals 6 percent - the prevailing market rate of interest and the rate of return on Fed equity. With respect to interest payments on reserves, the model predicts that reserve banks would impose service charges to cover costs - significant explicit nor implicit interest payments would not be made. On both counts, the model performs reasonably well.

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