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The scope of monetary policy actions authorized under the Federal Reserve Act

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Abstract

The Federal Reserve Act authorizes the Federal Reserve to undertake various types of discount window loans and open market operations. While the Federal Reserve generally has not found it necessary to use all types of such authority, there could be circumstances in which the Federal Reserve might need to consider utilizing its statutory authority more broadly than it has in the past. We examine the limits imposed by the Federal Reserve Act along two dimensions: those types of counterparties and financial instruments with which the Federal Reserve may conduct monetary policy. In doing so, we develop a theme not commonly pursued in the literature--the ways and extent to which the Federal Reserve Act limits the Federal Reserve from taking credit risk onto its balance sheet. We also provide some historical perspective on how the current powers of the Federal Reserve came to be authorized.

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  • James A. Clouse & David H. Small, 2004. "The scope of monetary policy actions authorized under the Federal Reserve Act," Finance and Economics Discussion Series 2004-40, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2004-40
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    References listed on IDEAS

    as
    1. Clouse James & Henderson Dale & Orphanides Athanasios & Small David H. & Tinsley P.A., 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-65, September.
    2. Michael J. Fleming, 2000. "The benchmark U.S. Treasury market: recent performance and possible alternatives," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 129-145.
    3. James A. Clouse, 1994. "Recent developments in discount window policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 965-977.
    4. Dwight Jaffee, 2003. "The Interest Rate Risk of Fannie Mae and Freddie Mac," Journal of Financial Services Research, Springer;Western Finance Association, vol. 24(1), pages 5-29, August.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Fed Goes to War
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2020-03-23 12:14:54

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    Cited by:

    1. Edda Claus & Mardi Dungey & Renée Fry, 2008. "Monetary Policy in Illiquid Markets: Options for a Small Open Economy," Open Economies Review, Springer, vol. 19(3), pages 305-336, July.
    2. Kenneth N. Kuttner, 2010. "The Fed's response to the financial crisis: Pages from the BOJ playbook, or a whole new ball game?," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(3), pages 407-430, March.
    3. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, July.

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    Keywords

    Monetary policy; Federal Reserve Act;

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