^*John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He is a senior fellow and former director of the Stanford Institute for Economic Policy Research and was founding director of Stanford's Introductory Economics Center. Taylor's academic fields of expertise are macroeconomics, monetary economics, and international economics. He has served as a member of the California Governor's Council of Economic Advisors from 1996 to 1998 and at present. He served on the President's Council of Economic Advisers as senior economist from 1976 to 1977 and as a member from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001. From 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs. In 2007, he received NABE's Adam Smith Award. He has also won a number of awards for distinguished public service and for outstanding teaching. He is a fellow of the American Academy of Arts and Sciences and the Econometric Society and served as vice president of the American Economic Association. Before joining Stanford in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. He received a B.A. in economics summa cum laude from Princeton University and a Ph.D. in economics from Stanford University.

Abstract

This paper examines the 100-fold increase in reserve balances at the Federal Reserve during 2008. By looking at the balance sheet of the Federal Reserve and factors influencing the supply and demand for reserves, the paper shows that the increase was due to large purchases of securities and loans to certain sectors and institutions. Such actions constitute a combination of monetary policy and industrial policy, or a mondustrial policy. This characterization raises questions about the future of the Federal Reserve and suggests the need to return to a monetary framework that controls the money supply while the interest rate is zero and establishes rules for setting the interest rate.