Down the road, once the recovery is well established and the appropriate time for beginning to firm the stance of policy appears to be drawing near, the FOMC will naturally need to  2  Early examples include Culbertson (1957), Tobin (1958), and Modigliani and Sutch (1966).
More recently, Vayanos and Vila (2009) study a preferred-habitat model in which short- and long-term assets are imperfect substitutes in investors’ portfolios and the effect of arbitrageurs is limited by their risk aversion or other market frictions such as capital constraints. 3  See Blue Chip Financial Forecasts (2008, 2009).