Monetary Policy and Economic Performance Since the Financial Crisis

Abstract

The analysis in this article was presented to the Federal Open Market Committee as background for its discussion of the Federal Reserve’s review of monetary policy strategy, tools, and communication practices. The Committee discussed issues related to the review at five consecutive meetings from July 2019 to January 2020. References to the Federal Open Market Committee’s current framework for monetary policy refer to the framework articulated in the “Statement on Longer-Run Goals and Monetary Policy Strategy” first issued in January 2012 (FOMC, 2021). We review the macroeconomic performance during the Global Financial Crisis and subsequent economic expansion, as well as the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the postcrisis experience of other major central banks with these policy tools. (JEL E31, E32, E52, E58)