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The Scope of Monetary Policy Actions Authorized under the Federal Reserve Act

47 Pages Posted: 27 Dec 2004  

David H. Small

Federal Reserve Board - Monetary Studies Section

James A. Clouse

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section

Date Written: July 2004

Abstract

The Federal Reserve Act authorizes the Federal Reserve to undertake various types of discount window loans and open market operations. While the Federal Reserve generally has not found it necessary to use all types of such authority, there could be circumstances in which the Federal Reserve might need to consider utilizing its statutory authority more broadly than it has in the past. We examine the limits imposed by the Federal Reserve Act along two dimensions: those types of counterparties and financial instruments with which the Federal Reserve may conduct monetary policy. In doing so, we develop a theme not commonly pursued in the literature - the ways and extent to which the Federal Reserve Act limits the Federal Reserve from taking credit risk onto its balance sheet. We also provide some historical perspective on how the current powers of the Federal Reserve came to be authorized.

Keywords: Monetary policy, Federal Reserve Act, discount window, open market operations

Suggested Citation

Small, David H. and Clouse, James A., The Scope of Monetary Policy Actions Authorized under the Federal Reserve Act (July 2004). FEDS Working Paper No. 2004-40. Available at SSRN: https://ssrn.com/abstract=622342 or http://dx.doi.org/10.2139/ssrn.622342

David H. Small (Contact Author)

Federal Reserve Board - Monetary Studies Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

James A. Clouse

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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