Floored!
In October 2008, as the U.S. economy plunged, the Federal Reserve began paying interest on banks’ reserve balances. The resulting switch to a “floor system” of monetary control, in which changes in the interest rate on reserves became the Fed’s chief tool for influencing economic activity. Finally, by severing the ordinary connection between the stance of monetary policy and the extent of the Fed’s asset holdings, the floor system risks turning the Fed’s balance sheet into a fiscal-policy playground. Floored! offers a matchless account of our post-crisis monetary system’s history and shortcomings.
Praise for Floored!
"Floored! gives an extraordinarily clear exposition of how the Fed sets the policy interest rate on excess reserves. It thereby reveals the monetary distortions caused by circumventing the market. George Selgin's advice should be read carefully by the Fed and followed."
— John B. Taylor, Stanford University
"Following the Great Recession, most Central Banks created money hugely; yet inflation remained below target. In this important book, George Selgin explains how the short-term experiment of paying interest on bank reserves had the unintended consequence of completely breaking the link between Central Bank policies and the growth of the broader monetary aggregates—and throws much-needed light upon a largely misunderstood aspect of recent monetary policies."