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New Monetarist Economics: Understanding Unconventional Monetary Policy


  • The author thanks the participants at the 40th Australian Conference of Economists for helpful comments and suggestions.

Stephen D. Williamson, Department of Economics, Washington University in St. Louis, St. Louis, MO 63130, USA. Email:


This paper focuses on Federal Reserve policy in the United States after the financial crisis. Two key interventions – QE1 and QE2 – are reviewed, and a model is outlined that can be used to help understand some of the consequences of the financial crisis, and the policy responses to the crisis. Liquidity traps play an important role in the analysis, and it is shown how the financial crisis led to an unconventional liquidity shortage, requiring an unconventional policy response.