Financial innovation reduces impact of Federal Reserve policy on real economy.
The article discusses how changes in financial innovation and monetary policy have affected the economy's response to Federal Reserve actions. Researchers found that monetary policy may have less impact on real activity now than before, but the reasons for this are still unclear. They explored different hypotheses, including changes in financial innovations, shifts in monetary policy conduct, and broader economic structural changes. The study also identified areas where financial innovation has not significantly altered the monetary transmission mechanism, such as the reserves market.