a. Given the change you observed in the excess reserve balance since the 2007-2008 financial crisis, and the fact that the Fed announced a near-zero federal funds rate target (0-0.25%) in late 2008, do you think open market operations are still effective in implementing the target federal funds rate? In your estimate, which portion of the demand curve for reserves in the model for the market for reserves that we learned in Chapter 18 did the economy fall into since 2008? Explain.

b. Because of the extraordinary measures the Fed undertook during the 2007-2008 financial crisis which were resumed and expanded during the pandemic, the primary tools the Fed relied on to achieve its interest rate target has changed. Given your answer to part e of this question above, which should be the primary tool now? Explain.

c. As we learned in Chapter 18, normally federal funds rate does not fall below the interest rate on excess reserves (IOER). What is the reason for this? Briefly explain.

Now, with the understanding that some financial institutions (such as some insurance companies and the so-called GSEs - government-sponsored enterprises. The latter includes financial agencies such as the household names Fannie Mae and Freddie Mac) which may also supply capital to the market for reserves do not enjoy the benefit of earning interest on excess reserves, do you think the federal funds rate can be lower than the interest rate on excess reserves?

d. Starting from 2013, the federal reserve has implemented a new measure to fine-tune the federal funds rate to ensure that it does not fall below the desired level. This measure is called overnight reverse repurchase agreement award rate. Basically, this is the reverse of the repo we described above. In this scenario, the Fed sells securities to some participating financial institutions with the simultaneous agreement to purchase them back the next day. Effectively, the Fed is borrowing money from these financial institutions at an interest rate set by itself. This interest rate is the so-called "overnight reverse repurchase agreement award rate". Compared to repo participating institutions which are so-called primary dealers with the highest credit quality, however, the participating institutions of the reverse repo have a larger set, which also includes the types of agencies described in part g of this question above. Now, with the overnight reverse repo in place, can the federal funds rate be below the overnight reverse repo award rate? Why or why not?