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11 - Policy Instruments for Reserves Management

from Part III - The New Regime

Published online by Cambridge University Press:  14 January 2021

Kenneth D. Garbade
Affiliation:
Federal Reserve Bank of New York
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Summary

Having settled, at least for the time being, on free reserves as a policy guide, the FOMC had to identify one or more instruments that it could use to expand or contract the size of the System Open Market Account according to the policy decisions of the Committee. Bills sufficed for operations of a modest size (no more than about $200 million) intended to remain in place for several weeks, but they were not liquid enough for larger operations expected to be quickly reversed. As a result, and in the face of strenuous objections from some Committee members, the Committee came to rely on repurchase agreements when it wanted to sterilize transient fluctuations in autonomous factors.

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After the Accord
A History of Federal Reserve Open Market Operations, the US Government Securities Market, and Treasury Debt Management from 1951 to 1979
, pp. 150 - 166
Publisher: Cambridge University Press
Print publication year: 2021

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