With a return to growth for the Irish economy heavily dependent on economic recovery in the world’s major economies, we must hope that the monetary policy actions being taken by the Fed and other leading central banks will be successful. Unfortunately, it’s a bit hard to judge what’s going on at the moment, particularly at the Fed.
I’m teaching a module at UCD this semester on central banking. I last taught the course in Autumn 2007 but already I’m going to have to rip up many of my old lecture notes, so dramatic have been the changes in monetary policy procedures, most notably at the Fed.
There have been a number of profound changes at the Fed, including a move away from targeting the Federal Funds rate and towards paying interest on reserves. But the most notable change has been the massive expansion in the size of the Fed’s balance sheet. The most useful summary of this development that I have found is this recent post by Jim Hamilton. Commenting on the huge expansion in the Fed’s balance sheet, Hamilton notes “The bottom line is that Bernanke has made a gamble with something approaching 2 trillion.”