Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189850 
Year of Publication: 
2017
Series/Report no.: 
Staff Report No. 809
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
This paper describes the Federal Reserve's framework for implementing monetary policy prior to the expansion of the Fed's balance sheet during the financial crisis. The pre-crisis framework was a reserve-scarcity regime in which banks demanded reserves in order to meet minimum reserve requirements. The New York Fed's open market trading desk implemented monetary policy by carefully managing the supply of reserves, primarily through the conduct of daily repo operations with primary dealers. The open market trading desk was able to achieve its monetary policy implementation objectives efficiently in the pre-crisis period without impairing financial market functioning. However, the framework deployed was complex relative to alternative implementation frameworks and required substantial intraday overdrafts from the Fed to meet banks' short-term payment needs. Once its balance sheet expanded in response to the financial crisis, the Fed was no longer able to rely on the pre-crisis framework to control the policy rate. Nevertheless, the open market trading desk successfully controlled the policy rate using the new, post-crisis framework, suggesting that effective monetary control may be achieved through different frameworks.
Subjects: 
Fed
monetary policy framework
pre-crisis
JEL: 
E52
E58
N10
Document Type: 
Working Paper

Files in This Item:
File
Size
615.36 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.