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The Need to Return to a Monetary Framework

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  • John B Taylor

Abstract

This paper examines the 100-fold increase in reserve balances at the Federal Reserve during 2008. By looking at the balance sheet of the Federal Reserve and factors influencing the supply and demand for reserves, the paper shows that the increase was due to large purchases of securities and loans to certain sectors and institutions. Such actions constitute a combination of monetary policy and industrial policy, or a mondustrial policy. This characterization raises questions about the future of the Federal Reserve and suggests the need to return to a monetary framework that controls the money supply while the interest rate is zero and establishes rules for setting the interest rate.Business Economics (2009) 44, 63–72. doi:10.1057/be.2009.1

Suggested Citation

  • John B Taylor, 2009. "The Need to Return to a Monetary Framework," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(2), pages 63-72.
    • Handle: RePEc:pal:buseco:v:44:y:2009:i:2:p:63-72
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    Cited by:

    1. Marius Constantin APOSTOAIE & Stefan MATEI, 2012. "Mutations at the Level of the Measures Adopted by Monetary Authorities," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 53-60.
    2. G. Korovin B. & E. Krokhina A. & Г. Коровин Б. & Е. Крохина А., 2017. "Комплементарные Институты Финансирования Региональной Экономики // Complementary Institutions For Funding Regional Economies," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 21(4), pages 30-39.
    3. Dermot Hodson & Deborah Mabbett, 2009. "UK Economic Policy and the Global Financial Crisis: Paradigm Lost?," Journal of Common Market Studies, Wiley Blackwell, vol. 47(5), pages 1041-1061, November.
    4. Creel, Jérôme & Hubert, Paul, 2015. "Has Inflation Targeting Changed The Conduct Of Monetary Policy?," Macroeconomic Dynamics, Cambridge University Press, vol. 19(1), pages 1-21, January.
    5. Maciej Ryczkowski, 2021. "Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 17-44, January.
    6. Browne, Frank & Kelly, Robert, 2009. "Money and uncertainty in democratised financial markets," Research Technical Papers 16/RT/09, Central Bank of Ireland.
    7. Maciej Ryczkowski, 2016. "Modern central banking from monetary perspective," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 15(4), pages 547-556, December.
    8. Paul Hubert, 2010. "Monetary policy, imperfect information and the expectations channel [Politique monétaire,information imparfaite et canal des anticipations]," SciencePo Working papers Main tel-04095385, HAL.
    9. Daniel L. Thornton, 2009. "How did we get to inflation targeting and where do we go now? a perspective from the U.S. experience," Working Papers 2009-038, Federal Reserve Bank of St. Louis.
    10. John B. Taylor, 2010. "Does the Crisis Experience Call for a New Paradigm in Monetary Policy?," CASE Network Studies and Analyses 402, CASE-Center for Social and Economic Research.
    11. Alesina, Alberto & Stella, Andrea, 2010. "The Politics of Monetary Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 18, pages 1001-1054, Elsevier.
    12. Pierre L. Siklos, 2010. "Inflation Targeting: It'S Not Broke, It Doesn'T Need Fixing, But Can It Survive?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 59-80.
    13. Ratti, Ronald A. & Vespignani, Joaquin L., 2013. "Liquidity and crude oil prices: China's influence over 1996–2011," Economic Modelling, Elsevier, vol. 33(C), pages 517-525.
    14. Ratti, Ronald & Vespignani, Joaquin, 2012. "Liquidity and crude oil prices: China’s influence over 1996-2011," Working Papers 15062, University of Tasmania, Tasmanian School of Business and Economics, revised 20 Sep 2012.
    15. John B. Taylor, 2018. "Alternatives For Reserve Balances And The Fed's Balance Sheet In The Future," Economics Working Papers 18103, Hoover Institution, Stanford University.
    16. Claudio Borio & Anna Zabai, 2018. "Unconventional monetary policies: a re-appraisal," Chapters, in: Peter Conti-Brown & Rosa M. Lastra (ed.), Research Handbook on Central Banking, chapter 20, pages 398-444, Edward Elgar Publishing.
    17. John Taylor, 2010. "An Exit Rule for Monetary Policy," Discussion Papers 09-009, Stanford Institute for Economic Policy Research.
    18. Belongia, Michael T. & Ireland, Peter N., 2017. "Circumventing the zero lower bound with monetary policy rules based on money," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 42-58.
    19. Michael T. Belongia & Peter N. Ireland, 2018. "Targeting Constant Money Growth at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 14(2), pages 159-204, March.
    20. John B. Taylor, 2010. "Commentary: monetary policy after the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 337-348.
    21. repec:bla:jcmkts:v:47:y:2009:i::p:1041-1061 is not listed on IDEAS
    22. Creel, Jérôme & Hubert, Paul, 2015. "Has Inflation Targeting Changed The Conduct Of Monetary Policy?," Macroeconomic Dynamics, Cambridge University Press, vol. 19(1), pages 1-21, January.
    23. Drakos, Anastassios A. & Kouretas, Georgios P., 2015. "The conduct of monetary policy in the Eurozone before and after the financial crisis," Economic Modelling, Elsevier, vol. 48(C), pages 83-92.
    24. Jung, Alexander, 2018. "Does McCallum’s rule outperform Taylor’s rule during the financial crisis?," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 9-21.
    25. Fernandez, Adriana Z. & Koenig, Evan F. & Nikolsko-Rzhevskyy, Alex, 2010. "Can alternative Taylor-rule specifications describe Federal Reserve policy decisions?," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 733-757, November.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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