https://macropaperwarehouse.com/authors/behzad-diba/Behzad DibaHugo -- gohugo.ioen-usWed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/a-model-of-post-2008-monetary-policy/Wed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/a-model-of-post-2008-monetary-policy/<p>Research question and motivation: Since 2008 the US economy has gone through two zero-lower-bound (ZLB) episodes (Dec 2008–Dec 2015 and Mar 2020–Mar 2022). Standard New Keynesian (NK) and monetarist models struggle with three broad facts about US inflation during these episodes, emphasized by Cochrane (2018): (1) no significant deflation, (2) little inflation volatility, and (3) no significant inflation following large quantitative-easing (QE) balance-sheet expansions. A fourth challenge is that money-market rates (federal funds, T-bills) were often below the interest rate on reserves (IOR rate), which many read as evidence of full satiation of reserve demand — undercutting any model relying on a monetary friction. Diba and Loisel build a model that can qualitatively account for all four facts and then draw out implications for policy normalization and the operational framework (floor system).</p>