Controlling Monetary Aggregates: The Discount Window

  • Published: Apr 30, 2012
  • Pages: 827-843
  • DOI: 10.1111/j.1540-6261.1983.tb02504.x


This paper argues that current discount window policy, coupled with non‐borrowed reserve targeting of the Federal Reserve, makes the quantity of high‐powered money endogenous. Examination of the advisability of this procedure in a stochastic environment is conducted using a general equilibrium financial model. It is concluded that the current policy reduces the destabilizing effects of shifts between various depository financial assets, but increases the effect of other asset portfolio shifts and aggregate supply disturbances. These results are consistent with the work of Poole inasmuch as the current debate over discount policy is a repackaging of the debate over interest rate or aggregates control for monetary policy.

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