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Is there any relationship between the monetary base and the interest rate of the US Federal Reserve?

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  • Nancy Muller Durán

    (Universidad Nacional Autónoma de México, México)

  • Ignacio Perrotini Hernández

    (Universidad Nacional Autónoma de México, México)

Abstract

The present paper deals with the United States Federal Reserve (Fed) way of manipulating the interest rate (i) within a framework of endogenous supply of money, exogenous interest rate and inflation targeting. We argue that the Fed controls the monetary base (H) with the aim of adjusting the federal funds interest rate. In order to empirically support our hypothesis, an econometric analysis is conducted with data from the US economy for the period 1990-2017. It is shown that there is a long-run relationship between the fluctuations of both H and i. Furthermore, it is also shown that the volatility of H significantly affects the behavior of i. It appears that this issue has not been sufficiently discussed in the relevant literature, hence –we would like to stress- our results represent the main contribution of this study.

Suggested Citation

  • Nancy Muller Durán & Ignacio Perrotini Hernández, 2018. "Is there any relationship between the monetary base and the interest rate of the US Federal Reserve?," Contaduría y Administración, Accounting and Management, vol. 63(4), pages 43-44, Octubre-D.
    • Handle: RePEc:nax:conyad:v:63:y:2018:i:4:p:43-44
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    References listed on IDEAS

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