Economic Brief

December 2012, No. 12-12

A Citizen's Guide to Unconventional Monetary Policy

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Historically, the Federal Reserve's primary monetary policy tool has been the federal funds rate. Since pushing that rate as low as it can effectively go in December 2008, the Fed has turned to alternative policy tools to stimulate economic growth and keep inflation near 2 percent. This Economic Brief provides a non-technical guide to how these unconventional policy tools are intended to work and discusses some of their risks.

Additional Resources

Bernanke, Ben S., "Monetary Policy Since the Onset of the Crisis," Speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyo., August 31, 2012.

Campbell, Jeffrey R., Charles L. Evans, Jonas D. M. Fisher, and Alejandro Justiniano, "Macroeconomic Effects of FOMC Forward Guidance," Brookings Institution, Spring Panel on Economic Activity, paper, March 22, 2012. (A conference draft is available online.)

Eggertsson, Gauti, and Michael Woodford, "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Spring 2003, pp. 139-211.

Ennis, Huberto M., and Alexander L. Wolman, "Excess Reserves and the New Challenges for Monetary Policy," Federal Reserve Bank of Richmond Economic Brief No. 10-03, March 2010.

Ennis, Huberto M., and Alexander L. Wolman, "Large Excess Reserves in the U.S.: A View from the Cross-Section of Banks," Federal Reserve Bank of Richmond Working Paper No. 12-05, August 2012.

Federal Reserve Board of Governors list of expired policy tools

Gurkaynak, Refet, Brian Sack, and Eric Swanson, "Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, vol. 1, no. 1, 2005, pp. 55-93. (A working paper version is available online.)

Haltom, Renee, and Juan Carlos Hatchondo, "How Might the Fed's Large-Scale Asset Purchases Lower Long-Term Interest Rates?" Federal Reserve Bank of Richmond Economic Brief No. 11-01, January 2011.

Kocherlakota, Narayana, "Inside the FOMC," Speech in Marquette, Mich., August 17, 2010.

Lacker, Jeffrey M., "Perspectives on Monetary and Credit Policy," Speech to the Shadow Open Market Committee Symposium, New York, N.Y., November 20, 2012.

Plosser, Charles I., "Fiscal Policy and Monetary Policy: Restoring the Boundaries," Speech to the U.S. Monetary Policy Forum at the University of Chicago Booth School of Business, New York, N.Y., February 24, 2012.

Werning, Iván, "Managing a Liquidity Trap: Monetary and Fiscal Policy," National Bureau of Economic Research Working Paper No. 17344, August 2011. (A more recent version is available online.)