Abstract
Unconventional policy actions, including quantitative easing and forward guidance, taken during and since the financial crisis and Great Recession of 2007-09, allowed the Federal Reserve to influence long-term interest rates even after the federal funds rate hit its zero lower bound. Alternatively, similar policy actions could have been directed at stabilizing the growth rate of a monetary aggregate in the face of severe disruptions to the financial sector and the economy at large. A structural vector autoregression suggests it would have been feasible for the Fed to target the growth rate of a Divisia monetary aggregate once the federal funds rate had reached its zero lower bound and that doing so would have supported a stronger, more rapid recovery.
Authors
- Michael T. Belongia
- Peter N. Ireland
JEL codes
- E21
- E32
- E37
- E41
- E43
- E47
- E51
- E52
- E65