Non-parametric tests of the efficacy of money stock control strategies

This paper develops and performs a series of non-parametric tests to find which among various hypothetical policy regimes would have been best at controlling the money stock. Non-activist use of the federal funds rate or of one of several versions of the base is compared to observed activist use of the federal funds rate in the 1970s and of the borrowed reserves base after 1982 in the USA. The results indicate that the observed activist use of the federal funds rate in the earlier period was superior to non-activist use of either the federal funds rate or non-borrowed reserves, but inferior to non-activist use of the monetary base; and the actual policy was underactive relative to the optimum. For the latter period the evidence shows that the observed activist use of the borrowed reserves base is superior to non-activist use of borrowed reserves while comparison to a non-activist use of the federal funds rate is inconclusive regarding which policy was superior. Finally, when compared to the optimum, actual policy was deemed to be underactive.