Date of Award
Master of Science (MS)
Economics, Finance, & Accounting
Dr. Milburn Little
The thesis will attempt to measure the extent that the discount operation of the Federal Reserve System affect changes in the credit or money supply of the economy. An increase or decrease in the rate can influence the volume of discounts and advances requested through the discount window by member banks. It can also reflect some increase in the market interest rate passed on to consumers and affect the volume of consumer credit demanded from banks. The actual money and credit supply is affected to some degree, although it is not affected to a large enough extent that discount operations alone can influence a contraction or expansion of the quantity of money and credit available. Without a severe contraction or expansion of this supply, the economy will follow a deflationary or inflationary pattern established by market trends. The Federal Funds market is a competitor of the Federal Reserve's discount operation and is influential in the effectiveness of increasing the discount rate. As the discount rate is increased the market demand and volume of transactions in Federal Funds will increase, counteracting the increase in the discount rate. The other instruments of monetary policy-reserve requirements and open market operation must be integrated into the network of control to bring about the stabilization of money again. It is through the use of monetary policy as a whole that pressures are implemented; not by single factors applied individually. But changes in the open market operations, reserve requirements, and discount operations at one time, in varying degrees, can expand or contract the money supply and credit. The discount operation is to be considered a direct tool when used with the other two measures, but when used alone it is only a supportive tool regarding monetary policy. The discount operation, then, is a supportive tool of the Federal Reserve System, and must be utilized as such. Fluctuations in the discount rate and other variations in the discount operation alone will not result in any substantial influx or money or credit in the economy.
Copyright 1966 Raymond Eugene Logan
Logan, Raymond Eugene, "Classification of the Federal Reserve's Discount Operation : A Direct or Supportive Instrument?" (1966). Master's Theses. 998.