Tag: Fed Research

How and When The Fed Should Exit

For the academic banker among us. To summerize: 

 

  • The Fed needs to move carefully
  • QE can mitigate the negative impact of financial/credit shocks on GDP in the short run if it is aggressive enough
  • There is an optimal timing to exit with respect to maximizing the mitigating effect of QE (around 35 - 40 periods)
  • An unanticipated exit works better than an anticipated exit
  • An one-time exit is likely to work better than a gradual exit provided the timing of the exit is not too early compared with the optimal timing

 

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