ABSTRACT
This chapter discusses a study that was undertaken to test alternative explanations of Federal Reserve behavior in the period 1923-1931 provided by a number of authors. In particular, it was desired to identify the determinants of Federal Reserve open market policy and its rate policy (discount and acceptance rates) in order to clarify the reasons for the failure of the System to undertake large purchases of government securities after the downturn of 1929. With respect to the question of consistency of Federal Reserve behavior in its open market operations, the regression analysis provided no evidence of a change in its behavior before and after 1929. The behavior appears to have been consistent, with two possible exceptions. One of these is the possibly decreased importance of the international goal after 1927; the other is the possibility that Federal Reserve officials over-reacted to the low rates of 1930-1931 that restricted purchases by these low rates more than would have been expected.
