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Perspectives on U.S. Monetary Policy Tools and Instruments

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  • James D. Hamilton

Abstract

The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve more accurate tools with which to achieve its strategic objective of influencing inflation and output.

Suggested Citation

  • James D. Hamilton, 2019. "Perspectives on U.S. Monetary Policy Tools and Instruments," NBER Working Papers 25911, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25911
    Note: ME
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Brave New World of Monetary Policy Operations
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2019-06-17 12:45:56

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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