The Federal Reserve has loaned out billions to a banking system that finds it has no non-borrowed reserves
, something that has never happened before.
The same models were then estimated for the non-borrowed reserves target period, with the results reported in the third and fourth columns of Table V.
Short-Run Monetary Control, Evidence Under a Non-Borrowed Reserves Operating Procedure.
13) Furthermore, as table 2 shows, the mixture model provides a superior fit across both the October 1979-October 1982 period, when the Fed targeted non-borrowed reserves, and the rest of the sample.
9 outside of October 1979-October 1982, the period of non-borrowed reserves targeting.
Under non-borrowed reserves targeting, however, the funds rate is market-determined, so discrete shifts in Fed policy are more likely to be revealed through the discount rate, thereby enhancing the informational value of discount rate changes, as it takes time for shifts in policy to translate into sustained changes in the rate of reserves growth.
Overall, the mixture model with time-varying prior probabilities fits the changes in the T-bill rate better than the technical/non-technical regression; it also provides better one-step-ahead forecasts, given that the prior probabilities use information about whether the change is technical or non-technical during periods when the operating target is non-borrowed reserves.
The mixture model yields superior results with the single exception of forecasting T-bill responses during the 1979-82 period of non-borrowed reserves targeting.
Third, discount rate policy apparently becomes an important source of information transmission during periods of non-borrowed reserves targeting.
The Fed's operating target was the federal funds rate throughout the 1970s until October 1979 when the Fed began to target non-borrowed reserves.