Bill Nelson on the Fed’s Operating System, Standing Repo Facility Stigma, and the Future of the Central Bank’s Balance Sheet
Macro Musings with David Beckworth
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The Fed Controlled the Mackero Economy by Providing Reserves
The Fed used to be able to control the mackero economy by moving it around, basically just by providing that small amount of reserves. They observed when doing that, what we observed is that if they provided extra money on any given day, that rates would quickly fall down to zero. The demand very an elastic, so rates would fall rapidly. In the global financial crisis, the fed had to grow rapidly, first because of its emergency lending, and then because of its acet purchases. It effectively changed operating systems after leman failed, by over supplying reserves and pushing rates down to the interest that it pays on reserves.
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