Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266099 
Year of Publication: 
2022
Series/Report no.: 
Staff Report No. 1015
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
Subjects: 
reserve management
central bank balance sheet
quantitative tightening
quantitative easing
interest on reserves
JEL: 
E31
E43
E52
E58
Document Type: 
Working Paper

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