UNCONVENTIONAL MEASURES OF MONETARY POLICY: EXPERIENCE OF THE FEDERAL RESERVE SYSTEM OF THE UNITED STATES
DOI:
https://doi.org/10.35774/jee2017.03.341Keywords:
Federal Reserve, monetary policy, interest rate, unconventional measures, financial crisis, quantitative easing, lending, economic growth, financial stability, dual mandate.Abstract
The preconditions, causes and peculiarities of the global financial and economic crisis created the basis for the withdrawal of central banks from their traditional limited range of instruments of monetary influence on the economy and the transition to the active use of unconventional monetary policy measures. The Federal Reserve was the first central bank which used the unconventional measures of monetary policy as a key factor in overcoming the recession and bringing the US economy to a sustainable growth path. The traditional instruments of monetary regulation during the period of aggravation of financial crisis on the money markets turned out complete ineffective, that had the destructive consequences for the economy. That is why so important is the analysis of the reasons for this ineffectiveness and the necessity of use of unconventional instruments. The practical mechanism of using such unconventional instruments of the Fed includes such as large-scale asset purchases and FOMC’s forward guidance about intentions. And it is hard to underestimate the role of these tools in the withdrawal of the American economy from the state of recession. Also important are innovative credit policy programs that have been used by the Federal Reserve during the period of growing crisis, in terms of increasing the effective ness of its impact on the financial stabilization of the banking system, providing markets with liquidity and stimulating domestic demand. The use of unconventional monetary policy instruments aims to achieve a wide range of strategic goals that include not only price stability but also economic growth and low unemployment. Thus, based on the powerful influence of the Fed’s monetary policy on the dynamics of the main economic parameters, it is expedient to apply a dual mandate in formulating the strategic goals of the central bank.
JEL: E44; E50; E52; E58; G21.
References
Bernanke B. S. Causes of the Recent Financial and Economic Crisis: Testimony Before the Financial Crisis Inquiry Commission, Washington, D. C., September 02, 2010 [Electronic resource] / B. S. Bernanke // Washington: Board of Governors of the Federal Reserve System. - Mode of access : https://www.federalreserve.gov/newsevents/testimony/bernanke20100902a.htm.
Bernanke B. S. Global Imbalances: Links to Economic and Financial Stability: Speech at the Banque de France Financial Stability Review Launch Event, Paris, France, February 18, 2011 [Electronic resource] / B. S. Bernanke // Washington: Board of Governors of the Federal Reserve System. - Mode of access : https://www.federalreserve.gov/newsevents/speech/bernanke20110218a.htm.
Bernanke B. S. Monetary Policy and the Housing Bubble: Speech At the Annual Meeting of the American Economic Association, Atlanta, Georgia, January 3, 2010 [Electronic resource] / B. S. Bernanke // Washington: Board of Governors of the Federal Reserve System. - Mode of access : https://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm.
Board of Governors of the Federal Reserve System: Monetary Policy Report to the Congress. - 2009. - July 21. - Washington D. C., 2009. - 56 р.
Chan S. Financial Crisis Was Avoidable, Inquiry Finds [Electronic resource] / S. Chan // The New York Times. - 2011. - January 25. - Mode of access : http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html?mcubz=1.
Dokko Jane. Monetary Policy and the Housing BubbleJElectronic resource] / Dokko Jane, Brian Doyle, Michael T. Kiley, Jinill Kim, Shane Sherlund, Jae Sim, and Skander Van den Heuvel // Finance and Economics Discussion. -2009. - Series 2009-49. - December. - Washington: Board of Governors of the Federal System,. - Mode of access : https://www.federalreserve.gov/ pubs/feds/2009/200949/200949abs.html. https://doi.org/10.17016/FEDS.2009.49
Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy. - 2017. - June. - 5 р.
Federal Reserve Act. Section 2A: Monetary policy objectives [Electronic resource] // The Board of Governors of the Federal Reserve System. - Mode of access : https://www.federalreserve.gov/aboutthefed/section2a.htm.
Federal Reserve issues FOMC statement, December 12, 2012 [Electronic resource] // Washington: Board of Governors of the Federal Reserve System. -Mode of access : https://www.federalreserve.gov/newsevents/pressreleases/ monetary20121212a.htm
Federal Reserve issues FOMC statement, October 29, 2014 [Electronic resource] // Washington: Board of Governors of the Federal Reserve System. -Mode of access : https://www.federalreserve.gov/newsevents/ pressreleases/ monetary20141029a.htm.
Federal Reserve System: Purposes and Functions [Electronic resource] // A publication of the Board of Governors of the Federal Reserve System. -Tenth Edition. - 2016. - October. - 182 р. - Mode of access : https://www.federalreserve.gov/pf/pf.htm.
Friedman M. The Role of Monetary Policy / M. Friedman // The American Economic Review. - 1968. - Vol. 58, No. 1. (Mar.). - Р. 1-17.
Johannsen B. K. The Expected Real Interest Rate in the Long Run: Time Series Evidence with the Effective Lower Bound [Electronic resource] / B. K. Johannsen, Е. Mertens // FEDS Notes. Washington: Board of Governors of the Federal Reserve System. - 2016. - February 9. - Mode of access : https://doi.org/10.17016/2380-7172.1703
Lindcey D. E. A Modern History of FOMC Communication: 1975-2002 / D. E. Lindcey // Authorized for public release by the FOMC Secretariat. -2003. - June 24. - 248 р.
Mishkin F. S. Monetary Policy Strategy: Lessons from the Crisis / Frederic S. Mishkin // National Bureau of Economic Research: Working Paper. - Cambridge. - 2011. - February. - 62 р. https://doi.org/10.3386/w16755
Rosa C. How «Unconventional» Are Large-Scale Asset Purchases? The Impact of Monetary Policy on Asset Prices / C. Rosa // Staff Report № 560, Federal Reserve Bank of New York. - 2012. - May. - 33 р. https://doi.org/10.2139/ssrn.2053640
Taylor J. B. Sound Monetary Policy: Testimony before the Subcommittee on Monetary Policy and Trade Committee on Financial Services U. S. / J. B. Taylor // House of Representatives. - 2017. - March 16. - 6 р.
Taylor J. B. Unconventional Monetary Policy, Normalization, and Reform: Testimony before the Subcommittee on Monetary Policy and Trade Committee on Financial Services U. S. / J. B. Taylor // House of Representatives. -2016. - December 7. - 4 р.
The Financial Crisis Inquiry Commission: Final Report of the National Commission of the Causes of the Financial and Economic Crisis in the United States: U.S. Government Printing Office. - Washington, D. C., 2011. - 633 р.
Yellen J. The Economic Outlook and the Conduct of Monetary Policy: Remarks at Stanford Institute for Economic Policy Research / J. Yellen. - Stanford, California : Stanford University, 2017. - 21 р.
Downloads
Published
How to Cite
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
