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Unformatted text preview: emand for money is fluctuating, it makes sense for Fed to change money supply to account
for those changes. ! Monetary Policy in the Financial Crisis: 2007-2011
First conventional, then unconventional monetary policy
- Fed lowered the fed funds rate virtually to zero (conventional monetary policy)
- Required little increase in reserves
- Then engaged in large-scale asset purchases (open market operations) to put downward
pressure on long-term interest rates (unconventional monetary policy) ! How Monetary Policy Really Works
- Fed funds rate set in the market for reserves, not in market for money
- Fed controls supply of reserves, but it does not attempt to control the money supply
- Textbooks present analysis in terms of market for money partly for simplicity, partly because of
inertia ! 11/21! Re...
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- Fall '09