The way monetary policy is implemented has changed. The Fed moved from a limited reserves regime, where reserves in the banking system are scarce, to an ample reserves regime, where reserves are ample or abundant. With the shift came an adjustment to the monetary policy tools. Given that this new regime is here to stay, and teaching materials are not widespread, this paper provides teaching guidance. First, we offer a simple means for covering the key concepts. Second, we answer some often-asked questions about the new material. Third, we present a classroom activity to demonstrate how the Federal Open Market Committee (FOMC) conducts monetary policy, how the Fed implements policy, and how those changes transmit through the economy to promote the dual mandate goals of maximum employment and price stability.
Jane Ihrig and Scott Wolla
Ihrig, J., & Wolla, S. (2023). Teaching Monetary Policy with Ample Reserves. Journal of Economics Teaching, 8(2), 114-127. DOI: 10.58311/jeconteach/6f8dff11179466b2d32da497c5465b9cff2774ac