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. 2021 Jan-Feb;43(1):15-33.
doi: 10.1016/j.jpolmod.2020.07.001. Epub 2020 Aug 30.

Modeling U.S. monetary policy during the global financial crisis and lessons for Covid-19

Ramaprasad Bhar  1 , A G Malliaris  2
Affiliations

Modeling U.S. monetary policy during the global financial crisis and lessons for Covid-19

Ramaprasad Bhar et al. J Policy Model. 2021 Jan-Feb.

Abstract

The paper formulates the modeling of unconventional monetary policy and critically evaluates its effectiveness to address the Global Financial Crisis. We begin with certain principles guiding general scientific modeling and focus on Milton Friedman's 1968 Presidential Address that delineates the strengths and limitations of monetary policy to pursue certain goals. The modeling of monetary policy with its novelty of quantitative easing to target unusually high unemployment is evaluated by a Markov switching econometric model using monthly data for the period 2002-2015. We conclude by relating the lessons learned from unconventional monetary policy during the Global Financial Crisis to the recent bold initiatives of the Fed to mitigate the economic and financial impact of the Covid-19 pandemic on U.S. households and businesses.

Keywords: 10-Year treasury; Labor market; Modeling unconventional monetary policy; Quantitative easing; The Covid-19 pandemic and the Fed; Unemployment.

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