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The discount window is such an important part of monetary policy and gets far too little written about it. People think it's obscure and irrelevant now but today it's like a blackhole- it's absence is felt through the effects of its absence. 1/N
One of the most important part of Bill Nelson's interview on @DavidBeckworth's podcast was when he discussed how the traditional aversion to the discount window has been heightened 1000 fold since the bailouts. Executive level officials believe they'll be fired for it. 2/N
With aversion so extreme, it's impossible to quantity limit non-borrowed settlement balances. With no aversion at all, the level of non-borrowed settlement balances wouldn't matter. It was only in the mid-20th system with mild aversion that they did matter. 3/N
Settlement balances were never quantity limited, but in the 1950s (post accord) you could quantity limit non-borrowed settlement balances and have banks either adjust to avoid the conditional direct credit regulations of the discount window or just be subject ot the 4/N
The other important piece here is of course that the 1950s and 1960s had a complex matrix of tools where the indirect tools (reserve requirements and open market operations) relied on the direct tools to be effective. We need to go back and learn from Robert Roosa et al. 5/N
Understanding their system and the credit availability doctrine is critical to redesigning monetary policy from the ground up 6/6
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