I am struck by the amount of detailed discussion of the architecture of the financial system in the transcripts. I’m sure many of you are thinking “duh — what else do you think the Fed discusses at its meetings?” Well, I agree, but the contrast with academic treatments of monetary policy is stark. As I wrote in a previous post, in my assessment, many macroeconomic researchers have been far too concerned with the details of price rigidity and far too indifferent about the details of financial arrangements. It seems that these details were occupying center stage during the financial crisis and we had better start to get a better picture of how these arrangements interact with monetary policy actions if we hope to respond appropriately to the next crisis.
03 March 2014
The Fed in 2008