Timeline for Fisher Effect vs Quantity Theory of Money and how an increase in the money supply lowers interest rates?
Current License: CC BY-SA 3.0
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| Mar 29, 2017 at 20:52 | comment | added | Henry | During Quantitative Easing the Federal Reserve Banks wanted to keep interest rates low. But to try put a floor under nominal interest rates, the Fed voluntarily paid interest on excess reserves (IOER): $0.25\%$ from 2009 to 2015, and $1\%$ now that interest rates are rising, so commercial banks would not be keen to lend at lower rates | |
| Mar 29, 2017 at 19:27 | comment | added | Hans Rudel | Hi Henry, thanks for replying. So im basically comparing apples and oranges then. One question though, I thought the FED increased the money supply by buying Government bonds (I believe reducing the "Discount Window" also increases the money supply. Reducing the Reserve Ratio also does a similar thing via the money multiplier.So when the FED buys bonds, that increases demand for bonds which results in higher prices => lower interest rates (unless i'm mistaken?). If thats correct, what tools do they have at their disposal to maintain the Nominal Interest Rate at its pre-bond buying level? | |
| Mar 29, 2017 at 15:54 | history | answered | Henry | CC BY-SA 3.0 |