Modeling Post-Crisis Monetary Policy

Chapter 1, co-authored with Scott Schuh, examines whether the Taylor Rule still adequately captures monetary policy despite unconventional monetary policies (UMP) and the policy rate near zero in 2009-2015. We find structural breaks at 2007:Q3 in macro models with a shadow funds rate. Taylor Rule coefficients shift back toward pre-1984 estimates and breaks occurred in non-policy parameters. Results are similar with the effective funds rate, so either breaks are not due to UMP or the shadow rate is an insufficient specification of UMP. Chapter 2 incorporates the term structure and the Fed’s average inflation targeting (AIT) framework into the model of Sims and Wu (2020) with an occasionally binding zero-lower bound. When agents know the Fed\u27s policy rule, AIT stabilizes inflation and utility compared to standard inflation targeting. Inflation is most stable, and utility is highest, when the average window is 8 and 16 quarters, respectively. If agents don’t know the exact details of the policy, inflation is most stable when the Fed averages inflation over longer periods. Outcomes are always better when the Fed reveals the specific details about the policy. Chapter 3 examines and critiques the literature surrounding interest on reserves (IOR). I examine early theories around the conduct of IOR. I then discuss how the implementation of IOR has differed from these theories, and, through a model of the fed funds market, I show how IOR reshaped the market for reserves. Finally, I analyze modern challenges of IOR in an ``abundant reserve\u27\u27 regime