tag:blogger.com,1999:blog-5713178645208582139.post20378227882279612..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: A New Paper on the Fed's Floor SystemDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5713178645208582139.post-36648739470495245232018-12-03T10:21:05.171-06:002018-12-03T10:21:05.171-06:00So the Fed wants to “normalize monetary policy”. ...So the Fed wants to “normalize monetary policy”. That’s “normalize” as in “government and central bank issue so much base money that they then have to borrow some of it back so as to restrain demand and thus ARTIFICIALLY raise interest rates to above their free market level.” <br /><br />That’s an interesting use of the word “normal”. Strikes me the words “loony” or “mad” would be more Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-45221701406451651082018-12-02T08:46:31.622-06:002018-12-02T08:46:31.622-06:00David, let me answer your question this way. You h...<br />David, let me answer your question this way. You have noted in past writings that the Fed has become a large financial intermediary since 2008. This transformation of the Fed did not happen in a vacuum. It required funding short and going long. To do so, the funding came from banks who--because of the floor system--invested in the Fed deposits rather than in other assets, including some David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-59959140077924366982018-11-30T09:36:17.992-06:002018-11-30T09:36:17.992-06:00"[This] can lead to a rebalancing of bank por..."[This] can lead to a rebalancing of bank portfolios that causes the supply of loans to be lower than it would have been otherwise. Banks lend as long as the marginal cost of funding is less than the risk-free marginal return on bank lending. In the Fed’s floor system, the IOER rate sets the marginal funding cost. Consequently, by setting the IOER rate higher than other short-term interest David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-34873812628207671082018-11-28T19:07:21.780-06:002018-11-28T19:07:21.780-06:00Great post.
I did not know I was a populist. Th...Great post. <br /><br /> I did not know I was a populist. That is, I have always pondered if there was an element of regulatory capture in the Federal Reserve's interest on excess reserves program. I thought the Fed had possibly borrowed some Department of agriculture economists and came up with the IOER plan.<br /><br /> Interesting question: the Fed has more than a thousand economists, if Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com