A fun chart

I leave the details to the reader, the time period is 1975 to 1985. But it shows a shortage of a producer item with a high coefficient relative to the interest rate, and the consumer price. The producer matches rate changes and price, rate go up, price goes up. The central banker, clueless and fishes around for the right rate here the producer item is as scarce as any other. The clueless central banker finds the spot, and the producer item does a shift forward in the finite supply line. Finally, consumer price, producer price and rates have matching coefficients and do the random walk.

Now, through out this, the central banker was earning about 5% income from dominating the short term bank lending market. You can see that because the central banker exited the market and rate jumped to 20%.  So the banker must have been earning money, removing it from the market, at 5% and at about twice the amount the market should support.

How did Milton Friedman ever decide that a monopoly banker taking such a huge haul from the market was inflationary? Was it because the banker was handing the cash to government? And how did Romer and Romer ever decide that having the monopoly banker dominate the short term lending market was an equilibrium?