Olivier Loisel

ENSAE

will give a presentation on

A Model of Post-2008 Monetary Policy

Abstract

Since the end of 2008, the Federal Reserve has b een communicating its monetary p olicy in terms of two instruments under its direct control: the interest rate on bank reserves (IOR rate), and the size of its balance sheet. We intro duce banks and bank reserves into the basic New Keynesian mo del to assess the main consequences of this p olicy change. We show that our mo del can account, in qualitative terms, for three key features of US inflation during the 2008-2015 zero-lower-bound (ZLB) episo de: no significant deflation, little inflation volatility, and no significant inflation following quantitative-easing p olicies. Crucial to this result is our assumption that demand for bank reserves got close to satiation, but did not reach full satiation. We intro duce liquid government b onds into the mo del to reconcile our non-satiation assumption with the fact that Treasury-bill rates dropp ed b elow the IOR rate during the ZLB episo de. Lo oking ahead, we explore the implications of our mo del for the normalization of monetary p olicy and its future op erational framework (floor vs. corridor system). In particular, we find that current and expected future IOR-rate hikes and balance-sheet contractions are always deflationary in our model, thus ruling out Neo-Fisherian effects

joint with Behzad Dibat

Considering the new rules on teleworking, we will get back to a hybrid format for our IRES  seminars. You are welcome to join in person in Doyen 22 but to facilitate teleworking, you can also follow our seminars on Teams.