The Federal Reserve's Current Framework for Monetary Policy: A Review and Assessment / Janice C. Eberly, James H. Stock, Jonathan H. Wright.

Format:

Book

Author/Creator:

Eberly, Janice C.

Contributor:

National Bureau of Economic Research.

Stock, James H.

Wright, Jonathan H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26002.

NBER working paper series no. w26002

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Federal Reserve’s Current Framework for Monetary Policy

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We review and assess the monetary policy framework currently used by the Federal Reserve, with special focus on policies that operate through the slope of the term structure, including forward guidance and large scale asset purchases. These slope policies are important at the zero lower bound. We study the performance of counterfactual monetary policies since the Great Recession in the framework of a structural VAR, identified using high-frequency jumps in asset prices around FOMC meetings as external instruments. The intention is to give guidance to policymakers responding to future downturns. In our counterfactuals, we find that slope policies played an important role in supporting the recovery, but did not fully circumvent the zero lower bound. In our simulations, earlier and more aggressive use of slope policies support a faster recovery. The recovery would also have been faster, with the unemployment gap closing seven quarters earlier, if the Fed had inherited a higher level of inflation and nominal interest rates consistent with a higher inflation target coming into the financial crisis recession.

Notes:

Print version record

June 2019.