Suchergebnisse

How is it that in a Democracy with massive inequality, where the poor have just as much voting power as the rich, do the wealthy continue to get what they want politically? It's a question that's troubled political thinkers for a long time.

Political scientists Jacob Hacker and Paul Pierson have an answer in their new book "Let Them Eat Tweets: How The Right Rules In An Age of Extreme Inequality". On this episode, we tackle that question and their answer.

After almost every election, you'll hear experts and pundits lamenting the lack of voter turnout. But does the research have anything to say about what policies would increase representation?

Our very own Anthony Fowler explains a new report that he co-authored in Brookings that argues we will get better representation but instituting compulsory voting in the U.S. But in a country where we can't even get everyone to wear a mask, what are the odds that compulsory voting would work here?

The dramatic rise of populism in America, embodied in President Trump, presents a real threat to democracy. Our very own professor William Howell argues that the root of the problem lies with ineffective government and that the solution may be to give the President agenda setting power.

We delve into his new book "Presidents, Populism, and the Crisis of Democracy" and explore how giving president's agenda setting power could break government gridlock and lead us to a more effective government.

One of the most anticipated developments of the 2020 election is who Democratic Presidential nominee, Joe Biden, will pick to be his running mate. One thing is certain, whoever he picks will be a women.

Does the political science scholarship tell us anything about how a woman executive may govern differently? One intriguing paper, "Queens", from Oeindrila Dube at The University of Chicago sheds some revelatory light on this question.

Government interventions in response to Covid-19 make clear that the state can act as an extremely powerful guarantor of economic and health security. But has the crisis, and the subsequent governmental response, shifted voters' attitudes about the role that the government should play in society more generally? In a recent study, Tim Hicks, Tom O'Grady, and Jack Blumenau (UCL) examine whether the pandemic has led to a reversal of 'small state' ideology. To discuss the implications of their findings they are joined by Lord (Stewart) Wood, special adviser to Gordon Brown and Ed Miliband, and by Ailbhe Rea, political correspondent at the New Statesman.

In this event, David Lammy MP (Shadow Secretary of State for Justice), Subhadra Das (UCL Collections) and Professor Tim Cole (Chair of the #WeAreBristol History Commission) will discuss the current situation with our statues and public spaces, their thoughts about the summer's protests and their ideas for the practical politics of how we move forward from here.

What are the major public opinion coalitions among Kentuckians? Is it as simple as blue voters vs. red voters, Democrats vs. Republicans? Or is there more nuance among Kentuckians when it comes to their political policy views? The 2019-2020 Nationscape … Continue reading →

Inequalities are at the forefront of today's public and policy debates. They have been linked to some of the most important political events, including the rise of populism across the developed world and the vote for Brexit, and have sparked worldwide protest movements.

In this blog post, first published on E-International Relations, Joris Melman reflects on the public's distance towards the EU. Even though most Europeans seem to lack interest in (or at least knowledge of) European policy-making, the role of public opinion is bigger than ever. There seems to be some irony in the devoted way in […]
The post Influential but indifferent? Assessing the role of the public in European politics appeared first on Post-Crisis Democracy in Europe.

The Fed's much-anticipated new monetary policy framework is now public. Fed Chairman Jerome Powell outlined the policy framework last week in Jackson Hole; you can view his speech here. Overall, I thought Powell's delivery was very good. While there's room for improvement, I think the new framework is a step in the right direction (George Selgin provides a good critique here). There were three things in Powell's speech that stuck out for me. I discuss these below. Shortfalls vs. DeviationsAt the 22:30 mark, Powell reports what may very well be the most substantive change to the monetary policy statement. Here, he states that the FOMC will now interpret important macroeconomic time-series like GDP and unemployment as exhibiting "shortfalls" instead of "deviations" from some ideal or "maximum" level (a frustratingly vague concept). The practical effect of this shift is to remove (or make less prominent) in the minds of FOMC members the idea that the economy is, or will soon be, "overheating" (i.e., embarked on an unsustainable path that can only end in misery for those most vulnerable to economic recession). The idea of "deviation from (some) trend" seems like a plausible description of the postwar U.S. up to the mid-1980s. Severe contractions were usually followed by equally robust recoveries. However, this representation seems to break down since the "great moderation" that began in the mid-1980s. Since then, economic recessions have not been followed by above-average growth. Instead, each recession seems better described as a "growth shortfall." We're not entirely sure what accounts from this cyclical asymmetry, but it seems consistent with Milton Friedman's "plucking model." I think we can expect a stream of research resurrecting this old idea (see here, for example). In any case, the upshot here is that, to the extent that "overheating" is no longer considered a serious threat, the FOMC will be less likely to implement "preemptive" policy rate hikes. This constitutes a tacit acknowledgement that the period leading up to "lift off" and what followed might have been handled better. As I wrote at the time (see my discussion here), standard Phillips Curve logic did not seem to support tightening (unemployment was above the estimated natural rate, inflation was below target, and inflation expectations were declining). But the Committee somehow talked itself into the need to "normalize," to act preemptively and not get caught "behind the curve." In fairness, monetary policy is always about balancing risks (in this case, the perceived risk of overheating). In the near future, less weight will be assigned to the risk of overheating.  The Maximum Level of Employment At the 22:30 mark, Powell states "Of course, when employment is below its maximum level, as is so clearly the case now, we will actively seek to minimize that shortfall..." I have a hard time not interpreting "maximum" here as "socially desirable." I think most people would agree that the 2008 financial crisis caused employment to decline below its maximum level. The workers rendered idle in that episode constituted a social waste, and the Fed was right to loosen monetary policy to stimulate economic activity in the face of recessionary headwinds.  But the recession induced by the C-19 is very different from standard recessions. This was laid out very clearly by St. Louis Fed President Jim Bullard on March 23, 2020: Expected U.S. Macroeconomic Performance during the Pandemic Adjustment Period. According to Bullard, the temporary removal of some workers from their jobs is not, in this case, a waste of resources. The decline in employment in this case should be viewed as an investment in public health. That is, the maximum level of employment declined and its recovery is driven mostly by the contagion dynamic (as well as improvements in social distancing protocols, masking, testing, treatments, etc.). The role of monetary policy here is to calm financial markets (which the Fed successfully accomplished in March) and to aid the fiscal authority with its income maintenance programs. In short, the primary monetary/fiscal policy objective here is to deliver insurance, not stimulus.  Monetary stimulus is appropriate, however, to the extent that demand factors (e.g., individually rational, but a collectively irrational restraint on spending) are inhibiting the recovery dynamic. The evidence for this is usually assumed to be found in falling inflation and inflation expectations, and declining bond yields. And usually, this makes sense, because we usually assume that recessions are caused by collapses in aggregate demand (as in 2008-09). But what if the increase in the demand for money (safe assets in general) is driven by a collectively rational fear? We'd expect to see the exact same inflation and interest rate dynamic, but the role for stimulative monetary policy would be more difficult to justify (though the desirability for insurance remains).  So, maybe it is not so clearly the case now that employment is below or, at least, far below its "maximum" level. Note that a significant part of the decline in aggregate employment is coming from the leisure and hospitality sector: Arguably, we do not want, at this stage of the pandemic, to promote the indoor dining experiences people enjoyed earlier this year. This activity will return slowly as economic fundamentals improve. The "full employment" level of employment in this sector is clearly below what it was in Jan 2020. But, to be fair, it is entirely possible, and perhaps even likely, that the level of employment even here is lower than the "full employment" level. It's very hard to tell by how much though.  Average Inflation Targeting At the 24:00 mark, Powell explains how AIT will help anchor inflation expectations. Missing the inflation for a prolonged period of time will cause expectations to drift away from target and line up with the historical experience. This view of expectation formation is firmly rooted in the "adaptive expectations" tradition. That is, expectations are assumed to be formed by looking backward instead of forward.  People sometimes claim that adaptive expectations are inconsistent with "rational" expectations. But this is not necessarily the case. In fact, it makes sense to use the historical record of inflation realizations to make inferences about the long-run inflation target if people are not sure of the monetary authority's true inflation target; see, for example, here: Monetary Policy Regimes and Beliefs.  It's still not entirely clear to me whether FOMC members view AIT as a policy to pursue passively (i.e., let inflation creep up to and beyond target on its own) or actively (i.e., take explicit actions to promote an overshoot of inflation). If it's the former, then I'm on board with the idea. But if it's the latter, I am not. In particular, with the liquidity-trap-like conditions we're presently in, the Fed does not have the tools (or political will) to boost inflation persistently. It is likely to fail, just as the Bank of Japan failed. (I explain here why it's more difficult for a central bank to raise the inflation target than to lower it.) So, as I've advocated many times in the past, why not just declare 2% as a soft-ceiling and let fiscal policy do the rest?  My view rests on the belief that missing the inflation target from below by 50bp over the past eight years is not a significant macroeconomic problem (especially given how crudely inflation is measured). The FOMC did view it as a problem, but mainly, it seems, because of the embarrassment associated with missing its target. "We are a central bank. We have an inflation target. Central banks are supposed to hit their inflation targets. We need to hit our inflation target to remain credible." This is why earlier FOMC statements emphasized the Fed's "symmetric" inflation target. That did not work and so now we have AIT which, I'm afraid, might not work either. Happily (for those who want to see higher inflation), Congress seems comfortable with the idea of producing large budget deficits into the foreseeable future.   So, if we get higher inflation, it will largely be a fiscal phenomenon. The purpose of AIT is to accommodate any rise in inflation for the purpose of increasing inflation expectations and avoiding the specter of deflation (people often point to Japan as a case to avoid, by Japan seems to be doing fine as far as I can tell). There is the question of how the Fed would react should inflation rise sharply and persistently above 2%. Even if the event is unlikely, it would be good to state a contingency plan. In the past, the Fed could be expected to raise its policy rate sharply. But this event, should it transpire, will almost surely take place during an employment shortfall (since this is now the acknowledged new normal). The only prediction I'll make here is that the FOMC will have a lot of explaining to do in this event.  

I have a new working paper titled "Better Risk Sharing Through Monetary Policy? The Financial Stability Case for a Nominal GDP Target". I presented this paper at the recent Cato Monetary Policy Conference. Here is the abstract:


A series of papers have shown that a monetary regime targeting nominal GDP (NGDP)

can reproduce the distribution of risk that would exist if there were widespread use of state contingentdebt securities (Koenig, 2013; Sheedy, 2014; Azariadis et al., 2016, Bullard and DiCecia, 2018). This paper empirically evaluates this view by exploiting an implication of the theory: those countries whose NGDP stayed closest to its expected pre-crisis growth path during the crisis should have experienced the least financial instability. This paper constructs an NGDP gap measure for 21 advanced economies that is used to test this implication. The results strongly suggest that there is a meaningful role for NGDP in promoting financial and economic stability.

And an excerpt:

The key insight of Koenig (2013), Sheedy (2014), Azariadis et al. (2016), and Bullard and DiCecia
(2018) is that in a world of incomplete markets where there is non-state contingent nominal
contracting, an NGDP target can reproduce the risk distribution that would occur if there were
complete markets and state contingent nominal debt contracting. An NGDP target, in other words,
can make up for the lack of insurance against future risks that could affect debtors' ability to repay
their debt. Conversely, an NGDP target can also make up for the lack of insurance against potential
returns a creditor might miss out on because their funds are locked up in a fixed-price nominal
loan. Bullard and Dicecia (2018) show that this result holds even when the heterogeneity among
debtors and creditors modeled approximates that of the actual income, financial wealth, and
consumption inequality in the United States. They note this makes NGDP targeting "monetary
policy for the masses." 

This paper uses what I call a 'sticky-forecast' of NGDP as a benchmark path. Here is the intuition for the measure:

The idea behind the sticky forecast path for NGDP is twofold. First, the public makes many economic decisions based on a forecast of their nominal incomes. For example, households may take out a 30-year mortgage based on an implicit forecast of their nominal income over this horizon. The actual realization of nominal income may turn out to be very different than expected, but the households may not be able to quickly adjust their plans given sticky debt contracts and other commitments that constrain them. Therefore, the consequences of previous forecasts are often binding on them and slow to change even if their nominal income forecasts have been updated. Second, in addition to these old forecasts and decisions whose influence lingers, new forecasts and new decisions are being made each quarter for subsequent periods that will also have lingering effects. Together, this means future periods have many overlapping and different forecast applied to them that only gradually adjust.

The sticky-forecast path of NGDP can be viewed, in other words, as the neutral level of NGDP given the public's expectations of nominal income leading up to each period. The gap between it and actual NGDP is the "NGDP gap" and provides a measure of the stance of monetary policy.



Here is a note that further explains its construction for the United States using quarterly data from the Survey of Professional Forecasters. The note also shows how the sticky-forecast measure can be used as cross-check on the stance of U.S. monetary policy. The figures below illustrate its use. The first figure shows the sticky-forecast path of NGDP along with the actual NGDP series.









This next figure show the NGDP Gap, the percent deviation between these two series. As noted above, this can seen as the stance of monetary policy. Interestingly, it provides results very similar to Taylor rules. The NGDP Gap indicates that currently the monetary conditions are still a bit tight, but close to neutral. 

Email



Share

Tweet

Share


Comment










Image

























Governments around the world are facing increasing constraints on their resources, but they must provide better public services. At the same time, there are increasing concerns about mismanagement of funds, lack of transparency, and prevalence of corruption. As part of the efforts to tackle these challenges, the World Bank is supporting countries in modernizing their public financial management (PFM) and implementing financial management information systems (FMIS).

A recently released World Bank Operational Guidance Note provides policymakers with operational guidance on how to ensure that FMIS projects better achieve the desired improvements in PFM outcomes while contributing to good governance. It draws on an extensive body of diagnostic and analytical work and more importantly, the lessons learned from FMIS implementation in more than 80 countries over the last 30 years.

Given its extensive coverage of the three phases of FMIS projects, i.e. the diagnostic, systems development life cycle, and coverage and utilization phases, the Note can be used by policymakers and practitioners to develop their strategies for any stage of FMIS implementation. It includes detailed guidance on how to avoid mistakes in procurement and contract management. It also discusses the potential use of disruptive technologies to maximize returns on existing investments.

Here are some key messages:

An adequate diagnosis of all aspects of budget management – not just accounting and reporting – is fundamental. This review should be undertaken to identify the needs that the system is intended to address before procuring and implementing a new FMIS.

The policy and institutional framework under which FMIS will operate is very important. The effectiveness of an FMIS as a budget management tool depends on its technical robustness as well as the policy and institutional environment, including a comprehensive single treasury account and the accompanying banking arrangements for government funds. It also depends on an appropriate budget classification structure and financial regulations that ensure budgetary compliance. According to the 2016 World Development Report on Digital Dividends, FMIS also needs analog complements to make them effective and protect against downside risks.

Strong government commitment must be sustained throughout the process. This can be fostered through well-designed project management structures, complemented with adequate considerations for training and change management.

System design should be cognizant of larger budget management issues and follow functional and business process requirements of government. System designs that follow predominantly technical considerations will be less effective in solving budget management problems. System implementation strategies should strategically take a phased approach rather than simultaneously implementing a wide set of functionalities that may overstretch client capacity. A modular approach can be more cost-effective, and could prioritize budget execution and reporting to achieve significant progress on budgetary control and cash management.

Transaction processing through FMIS needs to be comprehensive to ensure credible and complete information for financial operations and management reporting. The benefits from an FMIS pertain only to transactions processed through it.

It is important to understand the transaction ecosystem. While ultimately all transactions should be processed through FMIS, first targeting high-value transactions in system deployment will strengthen fiscal discipline. The following principles could help achieve ample coverage (and expenditure control):

All transactions generated at the central Ministry of Finance such as fiscal transfers, subsidies, and debt service payments, should be processed through FMIS;
All payroll and civil service pension payments calculated by a central system should be processed through FMIS (these would likely constitute some 30-40% of the total budget);
All payments from line ministries or spending units above the transaction threshold should be processed through FMIS
While low-value payments should also be processed through FMIS, they can be disbursed through innovative FinTech products such as mobile money or smart cards.

Accountability and budget compliance are necessary for FMIS to be effective in managing public expenditures. This requires significant political commitment to overcome resistance from vested interests.

Governments can take advantage of disruptive technologies and FMIS innovations. There are tremendous opportunities to deploy technologies such as cloud computing, big data, and machine learning, and robotic process automation to improve budget management. When adopting disruptive technologies, it is important to follow good GovTech principles, such as: a citizen-centric approach, and whole-of-government approach rather than ministry-specific solutions.









Topics

Governance
Macroeconomics and Fiscal Management









Regions

The World Region









Series

Financing for Development
GovTech
ICT4D
















Authors













https://www.linkedin.com/in/edward-olowo-okere-00838585/

twitter.com/intent/follow?screen_name=@Ed_OlowoOkere


Ed Olowo-Okere
Senior Advisor in the Equitable Growth, Finance, and Institutions (EFI) Vice Presidency at the World Bank.
More Blogs By Ed









































1













Dr Mitrajeet D.MARAYE


September 11, 2020

That appears to be an excellent tool to improve on good governance in the affairs of government and what is more important is total transparency. It is most important for governments to implement a clear legal requirement to ensure "effective FREEDOM OF INFORMATION". Unfortunately in many developing countries opacity in the affairs of governments and state owned enterprises is a major source of corruption throughout the system.

Ein Umfrageexperiment zur Messung der Wirkung politischer Online Werbung der kommunalen Ebene auf Facebook und Instagram. Ein Gastbeitrag von Jolyn Gutschmidt Informationen über die Autorin: Jolyn Gutschmidt beendete im Februar 2021 den Master-Studiengang "Politikwissenschaft, Public Policy und öffentliche Verwaltung" an … Weiterlesen →

The MSc International Public Administration & Politics programme (IPAP) at Roskilde University offers the students to come on a study tour to Brussels to visit the EU institutions and other organisations. This year the study tour took place 28-30 November, where 19 students and two lecturers – Sevasti Chatzopoulou and Helene Dyrhauge – visited NATO, […]
The post A jam-packed study tour to Brussels & students asking challenging questions to policy-makers appeared first on EU on what track?.

The 10-year treasury yield reached an historic low this week, crossing the 1% barrier. For many observers, this was a troubling development that confirms the U.S. economy is being sucked into the mire of secular stagnation. For others, it was an unsurprising outcome given the long-run trajectory of interest rates and the ongoing safe asset shortage problem.
Both views have some merit. The decline of the 10-year treasury yield does create problems for the U.S. economy, but it has been happening for some time. There is nothing magical about crossing the 1% barrier, though it does brings closer the day of reckoning for the Fed's operating framework.


The decline of the 10-year treasury yield, if sustained, means the entire yield curve may soon run into its effective lower bound. This will render useless much of the Fed's toolbox. Fortunately, there is a fix for the Fed's operating framework that makes it robust to any interest rate environment. This fix, ironically, ties the Fed more closely to fiscal policy while making it more Monetarist in practice. 

This post outlines the proposed fix, but first motivates it by explaining how the decline in the 10-year treasury yield creates problems for the U.S. economy.

Why The 10-Year Treasury Yield Decline Matters 

The are three reasons why the fall in the 10-year treasury yield matters. First, it implies there is an excess demand for safe assets. These are securities that are expected to maintain their value in a financial crisis and, as a result, are highly liquid. The biggest sources of safe assets are government bonds from advanced economies, especially U.S. Treasuries. The global demand for them has far outstripped their supply and this has led to the global safe asset shortage problem. The 10-year treasury yield falling below 1% is the latest manifestation of this phenomenon.



The safe asset shortage is problematic because it amounts to a broad money demand shock that slows down aggregate demand growth. One solution is for safe asset prices (interest rates) to adjust up (down) to the point that safe asset demand is satiated. The effective lower bound (ELB) on interest rates prevents this adjustment from happening and causes investors to search for safe assets elsewhere in the world. Other economies, as a result, are also affected by the safe asset shortage problem and experience lower aggregate demand growth.1



The demand for safe assets, as noted above, is closely tied to the demand for liquidity. This can be seen in the figure below which shows that the use of money assets (i.e. money velocity) closely tracks the 10-year treasury yield. Over the past decade, this has meant the public's desired money holdings have increased as the 10-year treasury yield has fallen. All else equal, this implies slower growth in aggregate spending.






Below is a chart from an upcoming policy brief of mine that illustrates this point from a global perspective. It shows the average 10-year government bond yield between 2009 and 2019 plotted against the average growth rate of domestic demand over the same period. The government bond yield can be viewed as the safe asset interest rate in these advanced economies. The figure reveals a strong positive relationship between the safe asset yield and the domestic demand growth rate.









One has to be careful interpreting the causality here, but I do further analysis in the policy brief and find shocks to the bond yields do influence domestic demand growth. The safe asset shortage, therefore, appears to be a drag on global aggregate demand growth. The first reason, then, why the decline in the 10-year treasury yield matters is that it portends weaker aggregate demand growth. 



The second reason the decline matters is that it leads to a flattening of the yield curve. Financial firms that fund short term and invest long term rely heavily on a positive slopping yield curve to make this business model work. A flattening yield curve undermines it and may lead to less financial intermediation. This is one reason an inverted yield helps predict recessions. In this case, however, the  effect may be longer lasting than the business cycle as the decline in treasury yields appears to be on a sustained path.


The third reason the decline matters is that it impairs the Fed's current tool box. The Fed's target interest rate is now down to a 1-1.25% range, a small margin for a central bank that normally cuts around 5% during a recession. The Fed could turn to large scale asset purchases once it hits the ELB, but with the 10-year treasury now near 1%, there is not much space here either. Consequently, the Fed's toolbox is shrinking and soon could be rendered useless. 

Now the Fed can add to its toolbox and indeed the Fed is exploring new tools--such as negative interest rates and yield curve control--under its big review of monetary policy. Even these tools, however, are limited since the declining 10-year treasury yield is compressing the yield curve. 

The Fed's current toolbox, in short, is premised on a positive interest rate world that is slowing fading. The Fed, therefore, may soon face a day of reckoning for its current operating framework. That possibility and what the Fed could do in response is considered next.


Revamping the Fed's Operating Framework

The Fed's operating framework--defined here as the instruments, tools, and targets the Fed uses in its conduct of monetary policy--has been geared toward a positive interest rate environment. This framework has been increasingly strained by the downward march of interest rates. The 10-year treasury yield dropping below 1% underscores this challenge.

The Fed needs, consequently, an operating framework that is robust to any interest rate environment and one that is capable of stabilizing aggregate demand growth. I have proposed a fix to the Fed's operating system that addresses these challenges in a forthcoming journal article. Here I want to briefly outline that proposal. It has three parts: (1) the Fed adopts a dual reaction function, (2) the Fed adopts a NGDP level target, and (3) the Fed is empowered with a standing fiscal facility for use at the ZLB.  The three parts are explained below. 






Part I: A Dual Reaction Function. To make the Fed's operating framework robust to both positive and negative interest rate environments, I call for a two-rule approach to monetary policy. Specifically, the Fed would follow a version of the Taylor rule when interest rate are above zero percent and follow the McCallum rule when interest rate are at zero percent or below. The former rule uses an interest rate as the instrument of monetary policy while the latter rule uses the monetary base as the instrument.  Consequently, the Fed would have effective instruments to use no matter what happens to interest rates. 


Part II: A NGDP Level Target. A level target provides powerful forward guidance since it forces the central bank to make up for past misses in its target. For reasons laid out here, I prefer a nominal NGDP level target (NGDPLT) and specifically, one that targets the forecast. This combined with the first feature implies the following dual reaction function system for the Fed:









Here, in is the neutral interest rate, the NGDPGap is the percent difference between the forecasted level of NGDP and the NGDPLT for the period of t to t+h, Δb is the growth rate of the monetary base, Δx* is the target NGDP growth rate, and Δv is the expected growth rate in the velocity of the monetary base for the period of t to t+h.




Part III: A Standing Fiscal Facility. The final part of the proposal establishes a standing fiscal facility for the Federal Reserve to use when implementing the McCallum rule. That is, when the Fed starts adjusting the the growth of the monetary base according to the McCallum rule, it will do so by sending money directly to the public. My proposal, then, incorporates 'helicopter drops' into the Fed's toolkit in rule-like manner. 


I provide more details in the paper, but here are the advantages of this proposed operating framework. First, it keeps countercyclical macroeconomic policy at the Federal Reserve. This provides continuity with the existing division of labor between the U.S. Treasury Department and the Federal Reserve.  Second, it enables the Fed to provide meaningful countercyclical monetary policy no matter what happens to interest rates. Third, it provides credible forward guidance since it combines a NGDPLT with helicopter drops. Finally, since this operating framework would require the Fed to be much more intentional about the rules it follows, it would make the Fed more rules-based and predictable. 



This proposal would require approval from Congress. Given the Fed's shrinking toolbox and the ongoing expectation that it deliver countercyclical policy, this may not be as big an ask as some imagine. Moreover, it could easily be seen as return to a more Monetarist Federal Reserve since it would be relying more explicitly on the monetary base to implement monetary policy. 

Conclusion 
Some commentators have speculated that the corona virus might be a shock that forces us out of our complacency and spawns many unintended innovations. To the extent this shock leads to ongoing declines in the treasury yields and exhausts the Fed current toolbox, it might also lead to innovations in U.S. monetary policy. Here's hoping it does along the lines suggested above. 






1 The safe asset shortge can also become self-perpetuating and lead to what Caballero et al (2017) call a 'safety trap'. This problem emerges when the excess demand for safe assets pushes down safe asset yields to the effective lower bound (ELB) on interest rates. If the excess demand for safe assets is not satiated at that point (i.e. the equilibrium real safe asset interest rate is below the ELB), then aggregate demand will contract and push down inflation. Via the Fisher relationship, the lower inflation will drive up the real safe asset interest rate and increase the spread between it and the equilibrium real safe asset interest rate. As a result, aggregated demand will further contract and the cycle will repeat.  This is the safety trap.