Summary:
Central bank policies have always incorporated both a discretionary or active component and a passive component. Successful central banking has required a coordination of the two components. After a period of apparent dormancy, the passive component of monetary policy has emerged from the shadows and become relevant for Federal Reserve policy today.
Key findings:
- Central bank policies have always had both active and passive components.
- Earlier generations of central banks strove for a balance between these two components.
- After a period of dormancy, the passive component of monetary policy has become relevant for current policy decisions.
Center Affiliation: Center for Financial Innovation and Stability
JEL classification: E58, G23, N20
Key words: central bank, monetary policy, active, passive, repo, reverse repo
https://doi.org/10.29338/ph2023-6