This: how can there be two and a half trillion dollars‘ worth of excess reserves while the Federal Funds rate rises? And can the Fed continue to expand the excess reserves of the United States while the Federal Funds rate rises? Does the Federal Funds Rate have any meaning any more? Should it?

This is obviously a reply to this post of Cowen. The only mild surprise in Hélène Rey’s research is that she was able to finally confirm the rather obvious: that the exchange rate regime doesn’t matter in countries prone to sudden crises of dollar availability.

The question of whether U.S. monetary policy has a real impact on other countries was answered decisively in the early 1980s. And Rey confirmed things are the same today as they were back then, despite the retreat of fixed exchange rates.