Let’s close the gap: Updating the textbook treatment of monetary policy

Jane Ihrig and Scott Wolla

The Journal of Economic Education, 2022, vol. 53, issue 3, 232-249

Abstract: The topic of the Federal Reserve’s (the Fed’s) implementation of monetary policy has a significant presence in economics textbooks. Unfortunately, as the Fed purposefully shifted the way it implements monetary policy to an environment with ample reserves in the banking system, many textbooks have not kept up. The authors walk through the key policy tools the Fed uses to implement policy in the ample-reserves regime. Next, they contrast the current framework with the pre-2009 regime to highlight that there are substantial differences in the policy tools and concepts that should be taught in the classroom. Finally, they review six, 2020 or 2021 edition, principles of economics textbooks and quantify how well they cover the key concepts associated with the way the Fed implements policy.

Date: 2022
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DOI: 10.1080/00220485.2022.2075509

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