unconventional monetary policy

Question 1

duration of FFR

Answer 1

overnight

Question 2

problem in 2008

Answer 2

Fed was looking for additional ways to stimulate economy with FFR already being set to zero

Question 3

why not just set FFr to -5%

Answer 3

people pull out of bank and use cash

Question 4

Fed is not willing to push short term rates below zero so they

Answer 4

1) quantiative easing
2) operation twsit
3) forward guidance

Question 5

unconventional monetary policy purpose

Answer 5

other than fine-tuning the total amount of reserves held by depository institutions

Question 6

three unconventional monetary policy

Answer 6

1)quantitative easing
2)operation twist
3)forward guidance

Question 7

1)quantitative easing
2)operation twist
3)forward guidance

is part of what policy

Answer 7

monetary

Question 8

quantitative easing

Answer 8

when fed buys trillion treasury bills nd bonds in financial markets
-buying large scale assets

Question 9

operation twist

Answer 9

sterilized version of QE

-twisted yield curve (abandoned it since its not very successful)

Question 10

forward guidance

Answer 10

communication about future monetary policy

Question 11

when is forward guidance most relevant

Answer 11

if you want to buy stocks and stuff because fed gives us hints of what they are gonna do in the future

Question 12

idea behind unconventional monetary policy

Answer 12

all three tools is to boost aggregate demand by stimulating asset prices (via lower long-term rates)

Question 13

unconventinoal monetary policy yield curve pre 2008

Answer 13

historically the fed mainly focused ons hort term rates such as FFR

Question 14

unconventinoal monetary policy yield curve post 2008

Answer 14

today it is mostly explcicitly seeks to infleunce long-term rates as well

Question 15

how are stock prices and interest rates related

Answer 15

inversely

Question 16

do you finance with QE with physical money

Answer 16

dont finance with phsyical money nevause it is too much to work with

Question 17

credit easing

Answer 17

one of the main things the fed bought in 2008 was mortgage stuff b/c of housing crash
-in 2020 fed bought paper to help firms

Question 18

before 2008 how was fed financed

Answer 18

by cash, then b/c of QE that changed

Question 19

MEP “twist”

Answer 19

purchased long form treasuries then sold short form b/c preference to keep size below 3 trillion
-had to venture above 3 trillion like covid
-now fed wants to dec balance street size

Question 20

how long was QE3

Answer 20

over 2-3 years

Question 21

with QE upward pressure on price depressed

Answer 21

interest rate

Question 22

what do ppl do with lower interest rate

Answer 22

ppl buy more and spend more money

Question 23

with QE P inc and r dec does what

Answer 23

stimulates AD beyond short term rates

Question 24

how does the fed finance large-scale asset purchases

Answer 24

by reserves (IOO)
-fed liability

Question 25

in what sense does a rise in the feds balance sheet represent a monetary expansion

Answer 25

because when Fed creates reserves then might be tempted to call it an expansion

Question 26

why arent reserves money

Answer 26

because they dont fulfi;l functions of money (MOE)

Question 27

in hindsight why is it unsurprising that this monetary expansion was not inflationary

Answer 27

2008 deflation

Question 28

in which two ways can the fed unwind its balance sheet

Answer 28

fed does not sell. to get rid of the debt instruments they wait it out. if fed started buying stocks it would impact balance sheet because they would have to sell and Fed does not like to sell so other people would want to sell too

Question 29

what does fed not like to do

Answer 29

does not like to sell

Question 30

how can it maintain the current size of its balance sheet

Answer 30

keep buying same amount

Question 31

QE4 was

Answer 31

inflationary

Question 32

operation twist: LT buy

Answer 32

P inc r dec

Question 33

operation twist ST sell

Answer 33

P dec r inc

Question 34

what happened in december 2015 when unemployment had declined to 5 percent

Answer 34

the fed eventually raised FFR above zero

Question 35

under QE the fed creates massive amounts of

Answer 35

reserves to purchase various financal assets

Question 36

what does fed do to maintain its current size

Answer 36

fed must purchase as much debt as is currently expriing. to reduce/grow its balance sheet it has to buy less/more than is currently expiring