Julius in Finance

All though there are even more dynamics in play than what I have described in my previous post, I had multiple requests on making a shorter summary of it. I’ll try to keep this one as short as possible, but if you wish to have more detailed (but not detailed enough imo.) description of the core of my argument, please refer to my previous post . Here we go. Before the Global Financial Crisis (GFC), the implementation method of how the Federal Reserve (FED) implemented its monetary policy in order to attain its SHORT-TERM rate target was called a “corridor system”. This is a corridor system that came with three important factors. First, it had a roof, or the discount window , which is a “lender-of-last-resort” channel to get funding if balances at the FED are overdrawn. Second, there was a floor, which was the zero lower bound (ZLB), or Federal Funds Rate = 0% and third, and from the perspective of current issues the most important one, reserve scarcity (deposits at the FED ...

A summary of this post can be found here . As there has been a constant debate about what to make of the latest interventions by the Federal Reserve (FED), whether we can call it QE or "Not-QE",  I thought it could be appropriate to try to explain, why we can technically argue that this is not a QE . To understand this, it is essential not only to understand what the FED or any other Central Bank does but to understand how monetary policy is implemented and how it has evolved since the Global Financial Crisis (GFC) Many may know that the FED tries to control short-term rates (important emphasis on SHORT-TERM rates) by setting a Federal Funds Target Rate . The federal funds market is an interbank market where banks and other institutions trade federal funds (bank reserves) on unsecured (no collateral pledged) basis. It is important to note, that the FED only sets a target rate or a target range  and the actual prevailing rate is the weighted average of unsecured loa...