An Endogenous Money Perspective on the Post-Crisis Monetary Policy Debate

Abstract

A number of debates are taking place regarding the appropriate response of monetary policy both to the crisis and the Great Recession that followed, particularly in regard to interest on reserve balances and so-called unconventional monetary policy operations. This paper describes in detail an endogenous money perspective on the interactions between central bank operations and banks, and then shows that interest on reserve balances does not impede the transmission of monetary policy, while quantitative easing does not necessarily enhance it.

Keywords: endogenous money, central bank operations, interest on reserves, quantitative easing

JEL Classification: E4, E5, E6