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on Monetary Economics |
| By: | Richhild Moessner |
| Abstract: | We study the impact of forward guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on real and breakeven US Treasury yield curves. We find that explicit FOMC policy rate guidance announcements led to a significant reduction in real yields. By contrast, breakeven inflation rates were barely affected, if at all, suggesting that inflation expectations have remained well-anchored, and that explicit FOMC policy rate guidance has not adversely affected central bank credibility. |
| Keywords: | Monetary policy; central bank communication; policy rate guidance; real yields; inflation expectations |
| JEL: | E52 E58 G15 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:398&r=mon |
| By: | William C. Dudley |
| Abstract: | Remarks at the Central Bank Independence Conference—Progress and Challenges in Mexico, Mexico City, Mexico. |
| Keywords: | Monetary policy ; Banks and banking, Central ; Federal Reserve banks - Costs ; Federal Reserve banks - Profits ; Federal funds rate ; Federal Reserve System |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:119&r=mon |
| By: | Camille Cornand (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure [ENS] - Lyon); Cheick Kader M'Baye (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure [ENS] - Lyon) |
| Abstract: | We use laboratory experiments with human subjects to test the relevance of di-fferent inflation targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We -find that if the central bank only cares about inflation stabilization, announcing the inflation target does not make a difference in terms of macroeconomic performances compared to a standard active monetary policy. However, if the central bank also cares about the stabilization of the economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap although their average levels are not aff-ected. This finding is consistent with those of the theoretical literature and provides a rationale for the adoption of a flexible inflation targeting regime. |
| Keywords: | Inflation targeting; inflation expectations; monetary policy; New Keynesian model; laboratory experiments |
| Date: | 2013–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00877409&r=mon |
| By: | David Cook; Michael B. Devereux |
| Abstract: | Open economy macro theory says that when a country is subject to idiosyncratic macro shocks, it should have its own currency and a flexible exchange rate. But recently in many countries policy rates have been pushed down close to the lower bound, limiting the ability of policy-makers to accommodate shocks, even in open economies with flexible exchange rates. In this paper, we show that if the zero bound constraint is binding and policy lacks an effective `forward guidance' mechanism, a flexible exchange rate system may be inferior to a single currency area, even when there are country-specific macro shocks. When monetary policy is constrained by the zero bound, under independent currencies with flexible exchange rates, the exchange rate exacerbates the impact of shocks. Remarkably, this may hold true even if only a subset of countries are constrained by the zero bound, and other countries freely adjust their interest rates. In order for a regime of multiple currencies to dominate a single currency area in a liquidity trap environment, it is necessary to have effective forward guidance in monetary policy. |
| JEL: | F3 F33 F4 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19588&r=mon |
| By: | William C. Dudley |
| Abstract: | Remarks at the Andrew Crockett Memorial Lecture, Bank for International Settlements 2013 Annual General Meeting, Basel, Switzerland. |
| Keywords: | Financial stability ; Monetary policy ; Banks and banking, Central ; Federal funds rate ; Interest rates ; Credit ; Demand for money ; Financial leverage ; Bank capital ; Bank of Japan ; Taylor's rule |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:108&r=mon |
| By: | Zheng Liu; Mark M. Spiegel |
| Abstract: | The recent financial crisis has led to large declines in world interest rates and surges of capital flows to emerging market economies. We examine the effectiveness and welfare implications of capital control policies in the face of such external shocks in a monetary DSGE model of a small open economy. We consider both optimal, time-varying restrictions on capital inflows and a simple capital account restriction, such as a constant tax on foreign debt holdings. We then compare the effectiveness of such capital account restrictions under alternative monetary regimes. We find that the optimal time-varying capital control policy is very effective in mitigating foreign interest rate shocks, but less effective for insulating the economy from export demand shocks; in the presence of export demand shocks, an exchange-rate stabilizing monetary policy regime can enhance macroeconomic stability and improve welfare. Under a simple and more practical capital control policy, a monetary policy regime that places larger weight on inflation fluctuations leads to additional gains in macroeconomic stability, although an exchange-rate stabilizing regime leads to even greater gains. Our findings suggest that, with either type of capital control policies, stabilizing the real exchange rate is a robust and effective monetary policy to help weather external shocks. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-33&r=mon |
| By: | James Bullard |
| Abstract: | May 23, 2013. Presentation. "Monetary Policy in a Low Policy Rate Environment." OMFIF Golden Series Lecture, London. |
| Keywords: | Interest rates ; Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:216&r=mon |
| By: | Eric S. Rosengren |
| Abstract: | Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, at The Council on Foreign Relations, New York, New York, October 11, 2013. |
| Keywords: | Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:76&r=mon |
| By: | van Suntum, Ulrich |
| Abstract: | It is argued that the stronger member states of the European Monetary Union should find their way out of the Euro in order to avoid being dragged into a disastrous course of inflation and over-indebtedness by the weaker members. A sudden exit would presumably cause financial turmoil as well as political damage and is, thus, no realistic option. However, by creating a parallel currency called Hard-Euro as an intermediate solution, there would indeed be a way of separating the EMU into two parts, with a weaker Euro in the southern countries and a stronger Euro in the northern countries. Using a small macro-model, the paper discusses this idea and its economic consequences in more detail. Following the early idea of separating the functions of money by Eisler (1932), the Hard-Euro is invented in the form of a pure book-money, while the Euro is still the only cash money until further notice. The Hard-Euro is designed as an index-currency such that its exchange rate exactly compensates for the inflation rate of the common Euro. Hence, it is absolutely stable in terms of consumer prices, and at the same time the exchange rate can never overshoot. By this means, savers in the stronger member states are protected from both inflation and financial repression, while the weaker member states can improve their competitiveness by inflating the Euro. It is shown, that this approach is likely to increase both investment and total output in the EMU. Later on, this intermediate regime could be substituted by the definite separation of the Euro-Zone into a stronger northern and a weaker southern part. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:64n&r=mon |
| By: | Francesco Lippi; Stefania Ragni; Nicholas Trachter |
| Abstract: | We study the optimal anticipated monetary policy in a flexible-price economy featuring heterogenous agents and incomplete markets, which give rise to a business cycle. In this setting money policy has distributional effects that depend on the state of the cycle. We parsimoniously characterize the dynamics of the economy and study the optimal regulation of the money supply as a function of the state. The optimal policy prescribes monetary expansions in recessions, when insurance is most needed by cash-poor unproductive agents. To minimize the inflationary effect of these expansions, the policy prescribes monetary contractions in good times. Although the optimal money growth rate varies greatly through the business cycle, this policy "echoes" Friedman's principle in the sense that the expected real return of money approaches the rate of time preference. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:13-17&r=mon |
| By: | James Bullard |
| Abstract: | January 10, 2013. Presentation. "The Fed's New Regime and the 2013 Outlook." Wisconsin Economic Forecast Luncheon, Wisconsin Bankers Association. Madison, Wisconsin. |
| Keywords: | Federal Reserve System ; Economic forecasting ; Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:209&r=mon |
| By: | Bo Young Chang; Bruno Feunou |
| Abstract: | We measure uncertainty surrounding the central bank’s future policy rates using implied volatility computed from interest rate option prices and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following the most important policy actions taken by the Bank of Canada as a response to the financial crisis of 2007-08, such as the conditional commitment of 2009-10, the unscheduled cut in the target rate coordinated with other major central banks, and the introduction of term purchase and resale agreements. We also find that, on average, uncertainty decreases following the Bank of Canada’s policy rate announcements. Furthermore, our measures of policy rate uncertainty improve the estimation of policy rate expectations from overnight index swap (OIS) rates by predicting the risk premium in the OIS market. |
| Keywords: | Credit and credit aggregates; Financial markets |
| JEL: | E4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-37&r=mon |
| By: | Hilberg, Björn; Hollmayr, Josef |
| Abstract: | In this paper we set up a New-Keynesian model with a heterogenous banking sector to analyze liquidity problems on the interbank market. The presence of an interbank market is essential to consider a situation where an increased liquidity supply by the central bank is only partially passed on to the interbank market. Moreover, this framework allows us to examine the implications of an unconventional monetary policy tool modeled as a haircut rule applied to eligible assets in repurchase agreements ('Repos') on the interbank market. We can show that this tool is suited to bring down the interest rate charged among banks on the interbank market. Furthermore an exogenous bubble process is modeled to evaluate the effects of the haircut rule for a central bank which decides to implement a 'leaning-against-the- wind'-policy. Finally, we analyze the long-run consequences of reacting to asset price movements and examine the effects of different exit strategies. We find that the central bank can stabilize all variables at the cost of higher inflation and that macroeconomic volatility is smallest if the central bank communicates the exit date in advance and credibly commits to it. -- |
| Keywords: | New-Keynesian Model,Monetary Policy,Business Cycle,Collateral,Haircuts |
| JEL: | E4 E5 E61 G21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:362013&r=mon |
| By: | Thomas C. Baxter, Jr. |
| Abstract: | Remarks at the Committee on International Monetary Law of the International Law Association Meeting, Madrid, Spain. |
| Keywords: | Lenders of last resort ; Banks and banking, Central ; Bank liquidity ; Recessions ; European Central Bank ; Federal Reserve System ; Federal Reserve Bank of New York ; Systemic risk ; Public welfare ; Investment banking ; Bank supervision |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:114&r=mon |
| By: | James Bullard |
| Abstract: | February 14, 2013. Presentation. "U.S. Monetary Policy: Easier Than You Think It Is." Mississippi State University, Starkville, Mississippi |
| Keywords: | Monetary policy - United States |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:211&r=mon |
| By: | John C. Williams |
| Abstract: | Presentation to Boise business and community leaders’ luncheon, Boise, Idaho, October 10, 2013 |
| Keywords: | Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:124&r=mon |
| By: | John C. Williams |
| Abstract: | Presentation to The Forecasters Club, New York, New York, February 21, 2013 |
| Keywords: | Economic conditions ; Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:116&r=mon |
| By: | David Andolfatto; Aleksander Berentsen; Christopher J. Waller |
| Abstract: | We study the use of intermediated assets as media of exchange in a neo- classical growth model. An intermediary is delegated control over productive capital and finances itself by issuing claims against the revenue generated by its operations. Unlike physical capital, intermediated claims are assumed to be liquid-they constitute a form of asset-backed money. The intermediary is assumed to control 1) the number of claims outstanding, 2) the dividends paid out to claim holders and 3) the fee charged for collecting the dividend. We find that for patient economies, the first-best allocation can always be implemented as a competitive equilibrium through an appropriately designed intermediary policy rule. The optimal policy requires strictly positive inflation. While it is also possible to implement the first-best by introducing at money and a lump- sum tax instrument, our results demonstrate that neither of these interventions are necessary for efficiency. |
| Keywords: | Monetary policy ; Asset-backed financing |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-030&r=mon |
| By: | John H. Makin (American Enterprise Institute) |
| Abstract: | The monetary cliff, or US potential to slip into a period of negative inflation (deflation), is more threatening than the fiscal cliff the United States faced earlier this year. Fed Chairman Ben Bernanke and soon-to-be chairman Janet Yellen should make deflation avoidance a more clearly stated Fed objective. |
| Keywords: | the Federal Reserve,Janet Yellen,FOMC,Economic outlook,deflation |
| JEL: | A E |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:39269&r=mon |
| By: | John C. Williams |
| Abstract: | Presentation to UC San Diego Economic Roundtable, San Diego, California, October 3, 2013 |
| Keywords: | Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:123&r=mon |
| By: | Christine Garnier; Elmar Mertens; Edward Nelson |
| Abstract: | We derive estimates of trend inflation for fourteen advanced economies from a framework in which trend shocks exhibit stochastic volatility. The estimated specification allows for time-variation in the degree to which longer-term inflation expectations are well anchored in each economy. Our results bring out the effect of changes in monetary regime (such as the adoption of inflation targeting in several countries) on the behavior of trend inflation. Our estimates expand on the previous literature in several dimensions: For each country, we employ a multivariate approach that pools different inflation series in order to identify their common trend. In addition, our estimates of the inflation gap—defined as the difference between trend and observed inflation—are allowed to exhibit considerable persistence. Consequently, the fluctuations in estimates of trend inflation are much lower than those reported in studies that use stochastic volatility models in which inflation gaps are serially uncorrelated. This specification also makes our estimates less sensitive than trend estimates in the literature to the effect of distortions to inflation arising from non-market influences on prices, such as tax changes. A forecast evaluation based on pseudo-real-time estimates documents improvements in inflation forecasts, even though it remains hard to outperform simple random walk forecasts to a statistically significant degree. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-74&r=mon |
| By: | James Bullard |
| Abstract: | July 12, 2013. Presentation. "Recent Developments in Monetary Policy." Global Interdependence Center's 5th Annual Rocky Mountain Economic Summit, Jackson Hole, Wyoming. |
| Keywords: | Monetary policy ; Economic conditions |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:218&r=mon |
| By: | Richard W. Fisher |
| Abstract: | Remarks before the Causes & Macroeconomic Consequences of Uncertainty Conference, Dallas, Texas, October 3, 2013 ; "A policy that takes a longer-term perspective and is properly communicated and executed—so as to instill confidence that monetary policy will hew to a 2 percent inflation target rather than fixate on the run-rate of the past four quarters or the outlook for the next four—may better supply the longer-term comfort that households and businesses need to plan and budget." |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddsp:137&r=mon |
| By: | Eric S. Rosengren |
| Abstract: | Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, to the Lake Champlain Regional Chamber of Commerce, Burlington, Vermont, October 2, 2013. |
| Keywords: | Economic conditions ; Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:75&r=mon |
| By: | Floro, Danvee; Tesfaselassie, Mewael |
| Abstract: | [Concluding remarks] The financial crisis has rendered conventional monetary policy (of major central banks) powerless. Unconventional monetary policy, in the form of forward guidance and quantitative easing, has taken center stage. Recent moves in financial markets have challenged the notion that forward guidance can be separated from the unwinding of quantitative easing and also shown that forward guidance can have perverse effects on market expectations. Nonetheless, forward guidance, as is currently formulated in practice, may be ineffective in managing market expectations not because central banks are powerless, but because they are too cautious, resulting in ambiguity in policy communication. Vagueness in communication is manifested by the insertion of conditionality and/or by the expression of intent, belief etc., to maintain accommodative policy on a certain course. Setting aside whether caution is warranted or not, the fact is that such vagueness is driven mainly by central banks unwavering commitment to price stability, a commitment which is credible owing to their hard-won reputation. Financial markets are aware of this commitment. Saying that, the remark in January 2000 by Ben Bernanke that 'far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution,' is still relevant now, as it was back then. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkpb:65&r=mon |
| By: | James Bullard |
| Abstract: | February 21, 2013. Presentation. "Perspectives on the Current Stance of Monetary Policy." NYU Stern Center for Global Economy and Business, New York, N.Y. |
| Keywords: | Monetary policy - United States |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:212&r=mon |
| By: | Ekaterina V. Peneva |
| Abstract: | Recent empirical research by Olivei and Tenreyro (2007) demonstrates that the effect of monetary policy shocks on output and prices depends on the shock's timing: In the United States, a monetary policy shock that takes place in the first half of the year has a larger effect on output than on prices, while the opposite is true in the second half of the year. Olivei and Tenreyro argue that this finding reflects the fact that a greater fraction of wage rates are re-contracted in the second half of the year, implying that wages (and prices) are less flexible in the first half. In this paper, I assess this explanation in light of several additional empirical results. Most importantly, I demonstrate that within-year differences in the responses of output and prices following a monetary policy shock are not more pronounced in the service-producing sector, where labor costs represent a larger fraction of total production costs. I also find that movements in prices following a monetary shock tend to lead wage changes. These and other empirical results suggest that something other than uneven wage adjustment might be responsible for the differential within-year effect of monetary policy shocks that Olivei and Tenreyro document. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-70&r=mon |
| By: | Farley Grubb (Department of Economics,University of Delaware) |
| Abstract: | The purpose of Chapter 3 is to convince the reader that the Continental dollar was a zero-interest bearer bond and not a fiat currency—thereby overturning 230 years of scholarly interpretation; to show that the public and leading Americans knew and acted on this fact, and to illustrate the ideal performance of the Continental dollar as a zero-interest bearer bond. The purpose of establishing the ideal performance is to create a benchmark against which empirical measures of depreciation can be evaluated. |
| Keywords: | Bearer Bonds, Continental Congress, Credible Commitment, Depreciation, Discounting, Legal Tender Laws, Paper Money, War Finance |
| JEL: | E51 E52 E61 E63 H56 H63 N11 N21 N41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:13-10.&r=mon |
| By: | James Bullard |
| Abstract: | September 20, 2013. Presentation. "Four Questions for Current Monetary Policy." New York Association for Business Economics, New York, N.Y. |
| Keywords: | Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:221&r=mon |
| By: | Katherine Femia; Steven Friedman; Brian Sack |
| Abstract: | In the past few years, the Federal Open Market Committee (FOMC) has been using forward guidance about the federal funds rate in a more explicit way than ever before. This paper explores the market reaction to the forward guidance, with particular focus on the use of calendar dates and economic thresholds in the FOMC statement. The results show that market participants interpreted the FOMC’s policy guidance as conveying important information about the Committee’s policy reaction function. In particular, market participants came to expect the FOMC to wait for lower levels of unemployment for a given level of inflation before beginning to raise the target federal funds rate, thereby shifting to a more accommodative policy approach aimed at supporting the economic recovery. |
| Keywords: | Federal Open Market Committee ; Monetary policy ; Federal funds rate ; Economic conditions |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:652&r=mon |
| By: | John C. Williams |
| Abstract: | Presentation to Portland community leaders, Portland, Oregon, September 4, 2013 |
| Keywords: | Economic conditions ; Employment ; Monetary policy |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:121&r=mon |
| By: | Greene, William H.; Gillman, Max; Harris, Mark N.; Spencer, Christopher |
| Abstract: | We propose a Tempered Ordered Probit (TOP) model. Our contribution lies not only in explicitly accounting for an excessive number of observations in a given choice category - as is the case in the standard literature on inflated models; rather, we introduce a new econometric model which nests the recently developed Middle Inflated Ordered Probit (MIOP) models of Bagozzi and Mukherjee (2012) and Brooks, Harris, and Spencer (2012) as a special case, and further, can be used as a specification test of the MIOP, where the implicit test is described as being one of symmetry versus asymmetry. In our application, which exploits a panel data-set containing the votes of Bank of England Monetary Policy Committee (MPC) members, we show that the TOP model affords the econometrician considerable flexibility with respect to modeling the impact of different forms of uncertainty on interest rate decisions. Our findings, we argue, reveal MPC members. asymmetric attitudes towards uncertainty and the changeability of interest rates. |
| Keywords: | Monetary policy committee, voting, discrete data, uncertainty, tempered equations |
| JEL: | C3 E50 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2013-04&r=mon |
| By: | William C. Dudley |
| Abstract: | Remarks at the Economic Club of New York, New York City. |
| Keywords: | Monetary policy ; Fiscal policy ; Economic conditions ; Housing - Prices ; International economic relations ; Corporate profits ; Labor market ; Federal Open Market Committee ; Federal funds rate ; Gross domestic product |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:99&r=mon |