BONUS: George Selgin on the Fed Taper and Shrinking the Fed’s Balance Sheet
Macro Musings with David Beckworth
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Is There a Corridor System?
You would like to see it end up at a corridor system, a true symmetric corridor system. Merely shrinking the balance sheets never going to give you a tear system. That has to be done through deliberate decision to grandfather a certain number of reserves and pay an interest rate that is above the target. So in a true corridor system, you have interest on reserves, but the interest rate is the lower bound of the corridor.
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