Where did Selgin get cause and effect?

This chart illustrates two important tendencies under the Fed's corridor system. First, the effective funds rate tended to increase in step with, or somewhat in anticipation of, changes to the Fed's target. Just as importantly, it increased by the same amount as that target. (The main exception is the drop in the effective funds rate coinciding with the Fed's response, consisting of an emergency liquidity injection, to the BNP Paribus crisis of August 2007.) Finally, when the target itself didn't change, as was the case between mid-2006 and mid-2007, the effective funds rate did not persistently deviate from it. These tendencies continued to be evident as the financial crisis worsened, and the recession deepened; and they are just the tendencies one expects from an operating system that succeeds well in implementing the Fed's interest-rate decisions.

The fist half look to me the Fed is following the market, which is more normal.  I do not see the market doing much anticipation. The exception, George points to also happens to coincide with a turning point in the recession cycle. We would expect volatility there, if the Fed were following the market.

Together the two series should be  noise, there should be little co-predictability. But, this is a corridor.
The Fed is in a loop, it is not a direct participant. If you add the one year treasury to the chart, you can see that is the main driver, debt accumulation on a predicable basis by a single enterprise of one fifth of the economy. So government's willingess to pay on the one year drives the whole complex.  Treasury is setting interest charges.

The safe rate happens because government pays a premium, the currency risk they guarantee, all the inflation adjustments and price fixes, aggregated under a single Treasury account will cost a premium in rates. That force drives the entire debt value chain, it is a 'force',a measurable headwind and cost. Central banking always bears the cost, it can never be true corridor, just improved.

The improvement is to better dis-aggregate treasury accounts, and let them trade in Fed space. If this is done, then Treasury looks more like a bunch of over night S/L accounts, the right to coin force is more dissipated, or split fairly, better observed.

Better picture:

Here we see the whole complex being driven by the one year, and today we see the same force draining excess reserves. The anomaly Selgin mentions is that sudden drop in the one year at 2007. The debt distribution chain caused that because ti cannot turn the corner, it is pro-cyclic. This came up a couple of time in the debate, it is old news.

The one year the clear leader, and that rate premium, and discount, is the right to coin force fouling up linearity for the corridor. That force is paid for in something we should call an ATM fee, but Treasury captures and insures a lot of it, it accumulates.

I think George is being polite. My theory is that the floor system was an after the fact head fake. Bernanke was getting at the real problem, no entry and exit movement in the Fed for large government enterprises. Ben was fixing that problem and got stuck in all this corridor debate. Ben knew he was dealing with a value added chain in Treasury debt. George knows all this, his whole basis is Free banking, and the concept is represented with free entry and exit in the model. We just acknowledge the bar to free entry and exit is right to coin.

The goal is to incentivize all parties to look like on demand S/L accounts at the Fed, a fair money market maker. In doing so it becomes proven that we have a natural uncertainty in the market, leading to a corridor system.  Except that central banking adds a third party cost, a literal market for right to coin costs, government ATM fees, congestion priced Fed accounts.