Monday, October 14, 2024
Hoover Institution | Stanford University
The Conduct of Monetary Policy: Evolution from Free Reserves to the Corridor and Floor Systems. Three noted experts focused on the details of the Fed’s operating system: Loretta Mester, former President of the Federal Reserve Bank of Cleveland, Bill Nelson, chief economist of the Bank Policy Institute and Darrell Duffie of Stanford University and the Hoover Institution. Mester described how following the Financial Crisis the Fed’s enlarged balance sheet required the Fed to implement its monetary policy through a floor system in an ample reserves regime from the corridor system in the scarce reserves regime. She emphasized that while the ample reserves system is more complex, it does ensure that the Fed has very good interest rate control. Bill Nelson described how the Fed’s current ample reserves regime has led to a withering of the interbank market and led the Fed to become more complacent about the enlarged size of its balance sheet. Darrell Duffie described how the growth of Federal government debt had dramatically increased the ratio of US Treasuries to total primary-dealer assets and how the sheer volumes of daily transactions of the repo market had come to overwhelm the Fed funds transactions between banks. Robert King of Boston University moderated this panel.
