Some comments on mechanical policy issues from NY Fed market operations head Potter
- Central banks should ease stigma of their lending facilities
- Hard to shrink balance sheets if rates often near zero
- Current environment delivering low rate volatility
"Recent experience does not suggest that the interbank market is special or that keeping an abundance of excess reserves prevents effective monetary policy implementation," he said.
Another note was a worry that banks won't be eager to trade with each other because they face costs of expanding their balance sheets.
He also raises some questions that no one seems to want to answer:
"Is there a size of the central bank's balance sheet beyond which further asset purchases become difficult or perhaps less effective? What are the fiscal implications of large central bank balance sheets? More research on these topics seems highly desirable"
