Dropping Money From Helicopters: Economist John Cochrane On Inflation

The Fed is now growing its balance sheet roughly in step with the quantity of reserve balances needed by banks within each day to make timely payments to each other. Systemically important banks also demand large quantities of reserve balances to comply with liquidity regulations. If the Fed were to aim for a smaller balance sheet, subject to effective monetary policy implementation, the enabling policies considered by this paper include counteracting unintended shocks to the supply of reserve balances with open market operations, adding a liquidity savings mechanism to the Fed’s largest payment system, ensuring that liquidity regulations don’t discourage banks from using the Fed’s liquidity facilities, and tiering the remuneration of reserves.

Barry Eichengreen explores why the dollar still dominates—and what history tells us about the currencies that might one day challenge it.

Hoover Institution fellow Darrell Duffie talks about ways to make a dent in the Fed’s balance sheet and the economic and political considerations behind them.