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Fiscal Dominance and US Monetary: 1940–1975

Author

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  • Owen F. Humpage

Abstract

This narrative investigates the frictions that existed between the Federal Reserve?s monetary policies and the US Treasury?s debt-management operations from the onset of the Second World War through the end of the Federal Reserve?s even-keel actions in mid-1975. The analysis suggests that three factors can help explain why the Federal Reserve compromised the attainment of its statutorily mandated monetary-policy objectives for debt-management reasons: 1) the existence of an existential threat, 2) the fear that to do otherwise would create instability in the banking sector, and 3) the vulnerability of Treasury financing operations to monetary-policy actions that existed when the Treasury did not auction its debts.

Suggested Citation

  • Owen F. Humpage, 2016. "Fiscal Dominance and US Monetary: 1940–1975," Working Papers (Old Series) 1632, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1632
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    More about this item

    Keywords

    Federal Reserve; US Treasury; monetary policy; debt management; bills only; even-keel;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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