Before the Accord: U.S. Monetary-Financial Policy 1945-51

Abstract

Thia paper analyzes U.S. monetary-financial policy in the period leading up to the Treasury-Fed Accord. We model policy as an implicit target zone for the price level and an explicit zone for interest rates, and the difficulties on the eve of the Accord as an incipient run on a collapsing target-zone regime. The regime was implemented to maintain the stability of the financial system in a period when there was a serious maturity mismatch between the assets and liabilities of the banking system.