DEPOSIT CEILINGS AND MONETARY POLICY.

Since 1966, the Federal Reserve Board has experimented with the use of Regulation Q, the regulation which specifies the maximum interest rates banks are permitted to pay on time and savings deposits, as an active tool of monetary policy. Since September 1966, the Federal Home Loan Bank Board has been empowered to impose ceilings on savings and loan associations and some mutual savings banks--movements in these ceilings to be coordinated with movements in Regulation Q ceilings. In spite of the now-substantial experience with these ceilings, there appears to be no consensus on what purely macro-economic consequences emerge from the employment of deposit ceilings. In analyzing deposit ceilings and stabilization policy, authors employ a macro-economic model containing goods, commercial bank reserves, currency, securities, demand deposits, commercial bank time deposits, and nonbank intermediary claims. The major conclusion of this paper is that the manipulation of effective deposit ceilings has a qualitatively ambiguous effect on the level of economic activity.