Federal Reserve Balance Sheet
October 26th, 2008 10:16 pm | by John Jansen |Professor Hamilton at Econbrowser has written an article about the expansion of the Federal Reserve balance sheet which has no equal. If you have any question about what they are doing and how they are doing it, he tackles the topic in clear and understandable prose and makes very clear there methodology. It is a very interesting and informative exposition of the radical transformation of monetary policy since August 2007
3 Responses to “Federal Reserve Balance Sheet”
By egc on Oct 26, 2008 | Reply
Mr. Jensen:
What do you think of Dr. Hamilton’s change of view that unwithdrawn bank reserves, instead of representing frictions in interbank lending, are instead a way for the Fed to hold a lid on money held by the public? Most other observers have characterized the sharp increase as a cash-hoarding bottleneck. It would also be expected during systematic monetary contraction: proceeds from forced asset sales used to repay loans and kept by banks as cash.
By david moore on Nov 26, 2008 | Reply
As of oct. 25th according to mr. Hamilton the Fed is trying to hold the line on inflation as much as possible by soaking up the created money purchases of risky assets by having the treasury sell bonds. Where can I get a current (weekly) accessment from Mr. Hamilton as to whether they are and will continue that practice. Their balance sheet is growing by the day. We are and will be in a severe contraction. Will it be inflationary or deflationary?
By ndk on Nov 26, 2008 | Reply
David, it’s very difficult to know. Check out the “rosy scenario” and “bad luck” scenarios posited here by Sims. We will have great difficulty controlling interest rates with the Fed’s balance sheet the way it is.
We should also remember that fiscal and monetary policy both totally failed in Japan in the ’90’s. With our 10 year finally cracking 3%, I don’t know if things are all good. As Werner put better than I can, “the simple first-round positive effects of fiscal policy may be partially or completely negated by negative effects that result from the need of the government to procure the money in order to fund the fiscal expenditure.”
Nobody has satisfactorily explained why the combination of the two couldn’t, should, or hasn’t worked. Lots have tried.