The federal reserve’s current framework for monetary policy: A review and assessment

Janice C. Eberly*, James H. Stock, Jonathan H. Wright

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

17 Scopus citations


The Federal Reserve’s current monetary policy framework combines conventional policy that sets the level of the federal funds rate with policies that operate through the slope of the term structure, including forward guidance and large-scale asset purchases. These slope policies are particularly important when the federal funds rate is at the zero lower bound. We assess the performance of counterfactual monetary policies since the Great Recession using a structural vector autoregression, identified using high-frequency jumps in asset prices around FOMC meetings as external instruments. We find that slope policies played an important role in supporting the recovery, but only partially circumvented the zero lower bound. In our simulations, earlier and more aggressive use of slope policies supports a faster recovery. The recovery would also have been faster, with the unemployment gap closing seven quarters earlier, if the Fed had inherited a higher level of inflation and nominal interest rates consistent with a 3 percent inflation target coming into the financial crisis recession.

Original languageEnglish (US)
Pages (from-to)5-71
Number of pages67
JournalInternational Journal of Central Banking
Issue number1
StatePublished - 2020

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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