How did the Fed conduct monetary policy before the financial crisis of 2007? Please show the pre-crisis Fed balance sheet, and the market for reserves graphically to supplement your answer.
Fed conduct monetary policy before the financial crisis of 2007?
As the Federal Reserve embarks on a new era of unconventional monetary policy, it is important to understand the context of its actions. Following the Federal Reserve’s response during and after the crisis of 2007-09, there was a significant debate about the conduct of monetary policy. This assignment is designed to help you understand some of the main concerns of the debate, as well as use data to illustrate the U.S. experience.
1. Firstly, Use the St. Louis Fred database to graph the monthly series on “Total Reserve Balances Maintained with Federal Reserve Banks” from January 1984 to March 2020. Download this data into an excel file.
2. Secondly, Using the same database, and time period, graph the monthly “Effective Federal Funds Rate”
(FFR). Download this into the same excel file.
3. Thirdly, Using the recession dates from the NBER website, how many recessions occurred between 1984-2020? Use the data you have downloaded and discuss how did the FFR change in the year leading up to the recession? How did reserve balances change? The NBER business cycle expansions and recessions are listed here: http://www.nber.org/cycles.html
4. Further, During each of these recessions, and for one year after the recession ended, discuss how
these two variables changed.
Analysis: based on the assignment reading, as well as class material.
The relevant section of the article will be from pgs. 177-186.
1. Using the market for reserves and balance sheet analysis discussed in class, and based on your reading of the article, how did the Fed conduct monetary policy before the financial crisis of 2007? Additionally, Please show the pre-crisis Fed balance sheet, and the market for reserves graphically to supplement your answer. (300 words)
2. Also, How did the market for reserves and the Fed’s balance sheet change during the 2007 crisis?
Additionally, Was there a difference in the balance sheet composition? (250-300 words)
3. Using the link below, summarize the balance sheet trends for the Fed, for the different items listed, from July 2007 to the present month. (200 words)
4. Finally, Discuss any two unconventional tools that the Fed is currently using to conduct policy.
Also, Describe these, and using the news articles we have read this semester, explain what are the intended effects on financial markets and the real economy. (300 words)