Monetary Policy with Interest on Reserves
نویسنده
چکیده
I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected inflation. With sticky prices, monetary policy can also affect real interest rates and output, though higher interest rates raise output and then inflation. The conventional sign requires a coordinated fiscal-monetary policy contraction. I show how conventional newKeynesian models also imply strong monetary-fiscal policy coordination to obtain the usual signs. I address theoretical controversies. A concluding section places our current regime in a broader historical context, and opines on how optimal fiscal and monetary policy will evolve in the new regime. ∗University of Chicago Booth School of Business, Hoover Institution, NBER, Cato Institute. I thank Bob Hall, Stavros Panageas, Siddhartha Sanghi, Tom Sargent, Tom Saving, John Taylor, and many seminar and conference participants for helpful comments and conversations. I gratefully acknowledge research support from CRSP.
منابع مشابه
Excess reserves and the New challenges for Monetary Policy
Interest on reserves allows the Federal Reserve to pursue an appropriate monetary policy even with a high level of excess reserves. However, a banking system flush with excess reserves can raise the risk of monetary policy getting behind the curve. In recent months, the level of total reserves held by depository institutions (DIs) in the United States has been consistently above $1 trillion. Of...
متن کاملThe Impact of Monetary and Exchange Policies on the Country’s Trade balance Fluctuation with the Approach of Dynamic Stochastic General Equilibrium (DSGE) models
This paper uses the framework of new Keynesian school and the literature of the Dynamic Stochastic General Equilibrium (DSGE) model to build a general model that can be estimated for Iran economy. By simulating this model, the effects of the implementation of monetary and foreign exchange policies through policy instruments including bank interest rate, central bank international reserves and t...
متن کاملI Indicators of Monetary Policy : The View from Implicit Feedback Rules
FREQUENTLY CITED THEORETICAL framework for the conduct of monetary policy consists of a policy instrument, an intermediate policy target and a long-run policy objective. The policy instrument is a lever which the central bank can manipulate to achieve its intermediate target. Possible choices for the policy instrument include the quantity of bank reserves, the monetary base (hank reserves plus ...
متن کاملThe Macroeconomic Effects of Interest on Reserves
This paper uses a New Keynesian model with banks and deposits, calibrated to match the US economy, to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require important adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish and households’ portf...
متن کامل