Mark Carney: belief

Transcript context

…I would say wasn’t. Ah, but there wasn’t. I think you’re absolutely right on that, there wasn’t. It is revealed that there wasn’t a liquidity trap. Further, for a large portion of that period, it was not that fiscal policy was providing the support, so it wasn’t the substitute for monetary policy. I think the innovation that was done on the monetary policy side helped ensure that the Fed — it didn’t quite get to its dual mandate, but it got pretty close. In the end, actually, by 2019 it certainly was there, in my judgment, at its dual mandate. That showed the ability to innovate in terms of policy tools and provide that, at the cost of some other risks that built up, of course. What’s the model you use for thinking about why the liquidity trap may not have applied? Because as you well know, interest was being paid on reserves. It wasn’t identically equal to the T-bill rate, but it was very close. T-bill markets are extremely liquid. Why are bank reserves and T-bills sufficiently different assets to give monetary policy traction?…

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