Question

During the Global Financial Crisis in 2008 the Federal Reserve targeted both non-borrowed reserves as well as borrowed reserves when it comes to stimulating the economy. In your opinion, is it better to target non-borrowed reserves or borrowed reserves when it comes to monetary policy?    

Answer 1

Ans-

The Federal Reserve System — America's central bank — is the main policymaking institution charged with fighting recessions. It is also one of several institutions charged with regulating banks and ensuring the stability of the financial system. Consequently, starting in 2008 and continuing for several subsequent years, the Fed was on the front lines of combating interconnected crises in the banking system and the real economy.

In its war on the crisis, the Fed has deployed a wide range of tools including the traditional tricks of monetary policy plus a range of unconventional measures. It's been in the public eye as never before, and been subjected to an unprecedented level of political criticism.

The Fed's main tactics were:

• Interest rate cuts
• Targeted assistance to ailing financial institutions
• Quantitative easing (or Large-Scale Asset Purchases)
• Forward guidance about interest rates

Despite the Fed's efforts, unemployment remained quite elevated for years after the onset of the crisis. As a result, the central bank found itself charged with both excessive complacency and excessive activism.

Who is making all these decisions?

The Federal Reserve system has a complicated governance structure, arising for a mix of historical and political reasons over the course of several decades. But the most important figure in Fed decision-making is the chair. That's Janet Yellen right now, but for most of the crisis years, the person in charge was Ben Bernanke, a former Princeton professor and George W. Bush administration official.

Alongside the chair there is a vice chair (Yellen's job before she became chair, currently vacant) and five other members of the Federal Reserve Board of Governors (now two of these five seats are vacant, and a third one will be soon when Jeremy Stein's already announced resignation takes effect). While governors serve 14-year terms (staggered every two years, though in practice governors often don't serve this long), chairmanship terms are four years long. However, chairs are often re-nominated and re-confirmed. William McChesney Martin, who served just shy of 19 years, from 1951 until 1970, was the longest tenured Fed chair, with Alan Greenspan close behind, serving roughly 18.5 years from 1987 through 2006.

Each of the 12 reserve banks is responsible for a particular geographic region, or district. In addition, there are 24 more Fed branch banks in other cities that help the region, or district. In addition, there are 24 more Fed branch banks in other cities that help the regional banks carry out their duties, like distributing currency and lending money to commercial banks. In addition, they conduct economic research and release indicators on a variety of topics and make it their business to understand and report on their regional economies. One key report that shows off this regional knowledge is the beige book, which is published eight times per year and collects the regional banks' qualitative assessments of economic conditions in their regions. Every regional Fed has its own president.The big monetary policy decisions are made by the Federal Open Market Committee, which meets eight times a year in Washington, DC. The FOMC is composed of the Board of Governors, plus the president of the New York Fed, plus three of the other 11 regional bank presidents on a rotating basis.