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Setting an Agenda for Monetary Reform

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  • Jane D'Arista

Abstract

The monetary policy that culminated in the current crisis and the failure of the Federal Reserve’s efforts to end the credit freeze in 2008 are critical components of the analysis needed as a backdrop for reform. This working paper argues that the link between excess liquidity, the buildup in debt, the asset bubbles that debt created and the financial crisis that followed are outcomes of monetary as well as regulatory policy failures; that they reflect a substantial weakening in the Fed’s ability to implement countercyclical initiatives. D'Arista argues that the effectiveness of monetary policy can, and must, be restored. She proposes a new system of reserve management that assesses reserves against assets rather than deposits and applies reserve requirements to all segments of the financial sector. She concludes that a change in the current system for implementing monetary policy is needed to end the credit crunch, address the impact of the current crisis on the financial sector and the economy and ensure the success of any fiscal stimulus that will be undertaken.

Suggested Citation

  • Jane D'Arista, 2009. "Setting an Agenda for Monetary Reform," Working Papers wp190, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp190
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    File URL: https://per.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP190.pdf
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    References listed on IDEAS

    as
    1. Alan Greenspan, 1996. "Opening remarks," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 1-5.
    2. Hans Tietmeyer, 1993. "Changing capital markets: implications for monetary policy - an overview," Economic Review, Federal Reserve Bank of Kansas City, vol. 78(Q IV), pages 5-11.
    3. Thomas Palley, 2007. "Asset-based Reserve Requirements: A Response," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 575-578.
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    Keywords

    Federal Reserve System; monetary policy; reserve requirements; financial crisis.;
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