Live from Evans Hall (Must-Read If You Could): Jeremie Cohen-Setton**: How Binding Is the Trilemma in a Currency Union?: Evidence from the Fed: The semi-autonomy of the regional reserve banks and...
...in particular, the non-uniformity of discount rates across districts in the early years of the Federal Reserve system, has often been treated as a curiosity. To shed light on this period and the possibility of different regional monetary policies in a currency union, I document with daily data that periods of non-uniformities in discount rates did not disappear after the New Deal reform of the Fed, although their size and duration substantially diminished. Using a monthly panel VAR for the period where member bank borrowing was a preponderant means of reserve provision, I show that regional deviations in discount rates were associated with regional deviations in member bank borrowings and local market interest rates. Rather than resulting from imperfect financial integration between districts or from a banker’s tradition against borrowing, I argue that differing regional monetary policies were made possible by the use of qualitative controls, which although ineffective at directing credit to a specific use, put a upper bound on inter-district arbitrage.
(NO PUBLICLY-DISTRIBUTABLE PAPER YET, ALAS...)
