Wednesday, October 29, 2014

When the FedFunds rate is above the Base Money growth rate, we go to Recession

Let's suppose that base money growth follows bank money growth. That's what you think, right? Okay, let's go with that.

If the FedFunds rate rises above the rate of base money growth, recession looms.


Oilfield Trash said...

Interesting, you might need to take INTRESEXCW for the rate paid on excess reserves and subtract it from the FF rate.

The Arthurian said...

Thank you, Oilfield Trash. Yes, interest paid on excess reserves affects the cost of base money so it is relevant. I didn't think of that.

But the QE was so big that I had to stop the graph around 2008 in order to see what happened in the years before 2008. I stopped the graph before interest on excess reserves. So, no effect on this graph anyway.

I'm not clear on all the costs of base money and how often those costs apply.

Definitely a good idea to SEX up the numbers a bit!