A BEJM Topics article.

Abstract

The Federal Reserve Act authorizes the Federal Reserve to undertake various types of discount window loans and open market operations. While the Federal Reserve generally has not found it necessary to use all types of such authority, there could be circumstances in which the Federal Reserve might need to consider utilizing its statutory authority more broadly than it has in the past.

We examine the limits imposed by the Federal Reserve Act along two dimensions: those types of counterparties and financial instruments with which the Federal Reserve may conduct monetary policy. In doing so, we develop a theme not commonly pursued in the literature -- the ways and extent to which the Federal Reserve Act limits the Federal Reserve from taking credit risk onto its balance sheet.

We also provide some historical perspective on how the current powers of the Federal Reserve came to be authorized.

Submitted: August 25, 2004 · Accepted: January 5, 2005 · Published: April 8, 2005

Originally published in Topics in Macroeconomics.

Recommended Citation

Small, David H. and Clouse, James (2005) "The Scope of Monetary Policy Actions Authorized Under the Federal Reserve Act," Topics in Macroeconomics: Vol. 5 : Iss. 1, Article 6.
Available at: http://www.bepress.com/bejm/topics/vol5/iss1/art6