Indeed, as recent ECB research shows, banks with weaker core capital positions, and greater dependence on market funding and on non-interest sources of income, restricted their loan supply more strongly than other banks during the crisis (see Marquez and Gambacorta, 2011). The third phase, which we can call the “Phasing-Out” phase, spanned the period between December 2009 to April 2010.
I will paraphrase my correspondent at length.13 Professor Orphanides’s recommendation is that the FOMC adopt a reference rule, based on a rigorous evaluation and paying particular emphasis to (1) robustness to model uncertainty, (2) robustness to natural rate uncertainty, (3) robustness to expectations formation, (4) robustness to the size of shocks and the effective lower bound, and (5) whatever else the Fed staff has identified as a gap in our knowledge that may matter in evaluation.