RE: Re: zero inflation and recession

[bjm@xxxxxxxxxxxxxxxx]

Sorry I've been tending my farm for a few weeks. Harvest season for
Warratahs. So I have 350 unread emails.
On Sept. 4th Paul wrote that the Fed can "control" even an endogenous money
supply.  Surely "influence" should be substituted for "control"?
    The supply of credit money is credit-driven. All our empirical evidence
indicates the demand for bank credit is extremely interest inelastic in the
short run.
       So...... while it is true the Fed can control the level of short
term interest rates, and also true that credit demand is inversely related to
interest rates charged, ...... this does not imply that the Fed can control,
in the sense of successfully hit, any particular monetary aggregate target.
Basil Moore

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> Subject: Re: zero inflation and recession
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>
> On Sun, 3 Sep 1995, James Devine wrote:
>
> >
> >      That is, how can one blame the Fed (a la Milton Friedman) if you don't
> >      accept the MF's assumptions about Fed control over the money supply?
>
> An endogernous money supply does not mean that the Fed has no control
> over the quantity of money actually supplied as even Basil Moore will
> admit. The Fed can set the interest rate at which the
> infinitely elastic  supply of endogeneous money is. Since the demand for
> credit is negative;ly related to the interest rate, cet. par. , then by
> raising interest rates, the quantity of money demanded is reduced, and
> therefore in equilibrium the quantity of money supplied is less than it
> would have been at a lower rate of interesty. Ergo the Fed can control
> the money supply even with endogeneous money.
>
> Paul D.
> >