simon m potter : implementing monetary policy post - crisis – what have we learned? what do we need to know? remarks by mr simon m potter, executive vice president of the markets group of the federal reserve bank of new york, at a workshop organized by columbia university sipa and the federal reserve bank of new york, new york city, 4 may 2016. * * * i would like to thank antoine martin for his assistance in preparing these remarks. i would like to welcome you to this workshop, organized jointly by the school of international and public affairs at columbia university and the federal reserve bank of new york. we have assembled an excellent set of presenters and discussants focused on the topic of implementing monetary policy post - crisis, who are here to ask important questions such as what have we learned from our experience and what do we need to know going forward? i am expecting an active and stimulating dialogue on a range of topics. as always, these remarks are my own and do not necessarily reflect the views of the federal reserve bank of new york or the federal reserve system. as most of you know, the federal reserve system is engaged in an extended effort to evaluate potential long - run monetary policy implementation frameworks. 1 there are many reasons to take a close look at the issues now. for example, the federal reserve has new tools, like the authority to pay interest on reserves and reverse repurchase agreements with an expanded set of counterparties, which were not available pre - crisis. 2 the money markets in which the trading desk of the federal reserve bank of new york ( the desk ) operates have different dynamics than before, in part because of our large - scale asset purchases. we want to take stock of these changes and ask ourselves what the best way of implementing monetary policy is today and in future environments in a manner that is consistent with the federal reserve ’ s normalization principles. 3 to make good choices about the monetary policy implementation framework going forward, it is, of course, useful to learn from the past. our task is to assess the strength and weaknesses of existing and previous frameworks, particularly through the lens of what happened during the recent global financial crisis, when central banks were called on to innovate in a number of ways. in addition, the varied experience of other central banks prior to the crisis can also provide valuable insights. what have they learned about what worked well, or did not work so well, with their frameworks? the current framework in the united states looks very

” system before, no country with as complex a financial system as the united states, with its wide variety of bank and nonbank institutions, had ever attempted to raise interest rates with such a large supply of excess reserves. the success of the new tools so far has been important for instilling confidence that policymakers can control overnight interest rates at levels appropriate to meet their goals. it also means that, in future, the federal reserve will not have to face the same technical constraint that leads to a conflict between easing strains in broad money markets and controlling the policy rate whether it uses a floor or corridor system. this could make the federal reserve system more agile and better able in future circumstances to provide the elastic currency that has the term deposit facility was established to facilitate the conduct of monetary policy by providing a tool with which the federal reserve can manage the aggregate quantity of reserve balances held by depository institutions. an increase in term deposits outstanding drains reserve balances because funds to pay for them are removed from the accounts of participating institutions for the life of the term deposit. this was due, in part, to the fact that the effective federal funds rate was a volume - weighted mean. the federal reserve bank of new york recently changed the calculation of the effective federal funds rate from a weighted - average mean to a weighted - average median to make it more robust. in addition, it started publishing a broader measure of bank funding costs, the overnight bank funding rate. the list of counterparties can be found at this link : https : / / www. newyorkfed. org / markets / expanded _ counterparties. bis central bankers ’ speeches been one of our stated purposes since the federal reserve act became law more than a century ago. until a few months ago, many conversations about the long - run framework for monetary policy implementation considered at least two options ; on the one hand, we had the old system based on reserve scarcity inducing competition for reserves, and, on the other hand, we had a theory about how competition in a range of money markets would pull market rates up in line with the interest rates administered by the federal reserve. the old system certainly had flaws, many of which were exposed during the crisis, but it had worked reasonably well. and a system that works reasonably well is often more appealing than one that exists only in theory. the successful liftoff has brought theory into practice, and the results have been good so far. i am not claiming that the current framework is perfect,