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Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?

Publication ,  Journal Article
Ihrig, JE; Meade, EE; Weinbach, GC
Published in: Journal of Economic Perspectives
November 1, 2015

For many years prior to the global financial crisis, the Federal Open Market Committee set a target for the federal funds rate and achieved that target through small purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large-scale asset purchase programs, this approach to implementing monetary policy will no longer work. This paper provides a primer on the Fed's implementation of monetary policy. We use the standard textbook model to illustrate why the approach used by the Federal Reserve before the financial crisis to keep the federal funds rate near the Federal Open Market Committee's target will not work in current circumstances, and explain the approach that the Committee intends to use instead when it decides to begin raising short-term interest rates.

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Published In

Journal of Economic Perspectives

DOI

ISSN

0895-3309

Publication Date

November 1, 2015

Volume

29

Issue

4

Start / End Page

177 / 198

Publisher

American Economic Association

Related Subject Headings

  • Economics
  • 14 Economics
 

Citation

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ICMJE
MLA
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Ihrig, J. E., Meade, E. E., & Weinbach, G. C. (2015). Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates? Journal of Economic Perspectives, 29(4), 177–198. https://doi.org/10.1257/jep.29.4.177
Ihrig, Jane E., Ellen E. Meade, and Gretchen C. Weinbach. “Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?Journal of Economic Perspectives 29, no. 4 (November 1, 2015): 177–98. https://doi.org/10.1257/jep.29.4.177.
Ihrig JE, Meade EE, Weinbach GC. Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates? Journal of Economic Perspectives. 2015 Nov 1;29(4):177–98.
Ihrig, Jane E., et al. “Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?Journal of Economic Perspectives, vol. 29, no. 4, American Economic Association, Nov. 2015, pp. 177–98. Crossref, doi:10.1257/jep.29.4.177.
Ihrig JE, Meade EE, Weinbach GC. Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates? Journal of Economic Perspectives. American Economic Association; 2015 Nov 1;29(4):177–198.

Published In

Journal of Economic Perspectives

DOI

ISSN

0895-3309

Publication Date

November 1, 2015

Volume

29

Issue

4

Start / End Page

177 / 198

Publisher

American Economic Association

Related Subject Headings

  • Economics
  • 14 Economics