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Managing Monetary Policy Normalization
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.
Report
Repurchase agreements as an instrument of monetary policy at the time of the Accord
Following the Treasury?Federal Reserve Accord of March 3, 1951, the Federal Open Market Committee (FOMC) focused on free reserves?the difference between excess reserves (reserve deposits in excess of reserve requirements) and borrowed reserves?as the touchstone of U.S. monetary policy. However, managing free reserves was problematic because highly variable and not readily predictable autonomous factors, including float, Treasury balances at Federal Reserve Banks, and currency in the hands of the public, induced comparable volatility and unpredictability in reserve deposits and hence in free ...
Report
ECB monetary operations and the interbank repo market
We examine the relationship between monetary policy operations and interbank borrowing and lending of funds using sovereign bonds as collateral. We first establish that, in the precrisis period, there are important but rather weak relations between these funding sources and that this relationship varies within maintenance periods and at the end of the year. Official funding conditions did not meaningfully constrain repo market activity in the 2003-05 period but, in the immediate precrisis period, rate increases led to a sharp contraction in repo activity. Focusing on the crisis period, we ...
Report
Managing Monetary Policy Normalization
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.