tag:blogger.com,1999:blog-5713178645208582139.post1251134847141007624..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Is U.S. Monetary Policy Really Tapped Out?David Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5713178645208582139.post-89243376754140128862009-02-12T17:03:00.000-06:002009-02-12T17:03:00.000-06:00David,I would break your question into several par...David,<BR/><BR/>I would break your question into several parts.<BR/><BR/>First, the world has changed now that the Fed has started to pay interest on reserves. But the effect of this change has been obscured (temporarily) under current “liquidity trap” conditions. Because the fed funds rate has hit the zero bound, the interest rate paid on reserves has hit it as well. Therefore, paying interest Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-25260076948867090032009-02-12T16:29:00.000-06:002009-02-12T16:29:00.000-06:00JKH:After thinking this through some more, I belie...JKH:<BR/><BR/>After thinking this through some more, I believe you are correct that the effect of removing the payment of interest on excess reserves would be negligible. The rate they are paying is so low it has to be inconsquential. Thanks for helping me think more clearly on this issue. <BR/><BR/>So let me throw you a question slightly off topic. What danger is there in the Fed targeting the David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-87019678306710286092009-02-12T09:38:00.000-06:002009-02-12T09:38:00.000-06:00“What would happen if the Fed dropped this policy ...“What would happen if the Fed dropped this policy and did not attempt to sterilize these reserves? I suspect we would not see pictures like this one (click on figure to enlarge)”<BR/><BR/>Why should one suspect this?<BR/><BR/>The Fed determines the level of excess reserves. Member banks have no direct effect on the level of system reserves, whatever their chosen velocity of reserve deployment.<BRAnonymousnoreply@blogger.com