Fed economists propose alternative to floor system

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A system based on the Bank of England’s (BoE) pre-crisis monetary policy framework could provide a solution for the US Federal Reserve’s technical issues in controlling market rates, two Fed economists propose.

A “voluntary reserve target” framework would increase activity in the federal funds market and reduce volatility in rates, suggest economists Garth Baughman and Francesca Carapella. It would also provide the central bank with greater flexibility over the size of its balance sheet.

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