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Did the Fed follow an implicit McCallum rule during the Great Depression?

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  • Damette, Olivier
  • Parent, Antoine

Abstract

In this paper we address the issue of the consistency of the Fed action during the interwar period using a McCallum base money rule. Developing backward-looking models, forward-looking models and counterfactual historical simulation, we found that the McCallum rule provides interesting historical lessons to identify possible driving forces of its policy setting. We give evidence that over the period 1921–1933 the Fed followed an imperfect and partial McCallum rule, moving the money base instrument according to an output target but not correcting for the deviation from this target. Lastly, our outcomes highlight that during the Great Depression the Fed was probably more active than suggested in the literature.

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  • Damette, Olivier & Parent, Antoine, 2016. "Did the Fed follow an implicit McCallum rule during the Great Depression?," Economic Modelling, Elsevier, vol. 52(PA), pages 226-232.
    • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pa:p:226-232
    DOI: 10.1016/j.econmod.2014.11.012
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    1. Caggiano, Giovanni & Castelnuovo, Efrem & Damette, Olivier & Parent, Antoine & Pellegrino, Giovanni, 2017. "Liquidity traps and large-scale financial crises," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 99-114.
    2. Yutaka Kurihara & Akio Fukushima, 2020. "Taylor and McCallum Rule during the Unprecedented Monetary Easing Era: The Recent Japanese Case," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 70-77, May.
    3. Makram El-Shagi & Yishuo Ma, 2024. "New Evidence on the PBoC's Reaction Function," CFDS Discussion Paper Series 2024/5, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    4. Klingelhöfer, Jan & Sun, Rongrong, 2018. "China's regime-switching monetary policy," Economic Modelling, Elsevier, vol. 68(C), pages 32-40.
    5. Le Riche, Antoine & Magris, Francesco & Parent, Antoine, 2017. "Liquidity Trap and stability of Taylor rules," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 16-27.

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