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45 posts on "Monetary Policy"

March 05, 2014

Risk Aversion, Global Asset Prices, and Fed Tightening Signals

Jan Groen and Richard Peck

The global sell-off last May of emerging market equities and currencies of countries with high interest rates (“carry-trade” currencies) has been attributed to changes in the outlook for U.S. monetary policy, since the sell-off took place immediately following Chairman Bernanke’s May 22 comments concerning the future of the Fed’s asset purchase programs. In this post, we look back at global asset market developments over the past summer, and measure how changes in global risk aversion affected the values of carry-trade currencies and emerging market equities between May and September of last year. We find that the initial signal of a possible change in U.S. monetary policy coincided with an increase in global risk aversion, which put downward pressure on global asset prices.

Continue reading "Risk Aversion, Global Asset Prices, and Fed Tightening Signals " »

March 03, 2014

How Unconventional Are Large-Scale Asset Purchases?

Carlo Rosa and Andrea Tambalotti

The large-scale asset purchases (LSAPs) undertaken by the Fed starting in late November 2008 are widely considered to be a form of “unconventional” monetary policy. Although these interventions are certainly unprecedented, this post shows that their effect on financial conditions is not that unconventional, in the sense that the relative effects of the LSAPs on returns across broad asset classes—nominal and real government bonds, stocks, and foreign exchange—are quite similar to those of more conventional policies, such as a reduction in the federal funds rate (FFR).

Continue reading "How Unconventional Are Large-Scale Asset Purchases?" »

Posted by Blog Author at 7:00 AM in Financial Markets, Monetary Policy | Permalink | Comments (0)

December 09, 2013

Who’s Borrowing in the Fed Funds Market?

Gara Afonso, Alex Entz, and Eric LeSueur

The federal funds market plays an important role in the implementation of monetary policy. In our previous post, we examine the lending side of the fed funds market and the decline in total fed funds volume since the onset of the financial crisis. In today’s post, we discuss the borrowing side of this market and the interesting role played by foreign banks.


Continue reading "Who’s Borrowing in the Fed Funds Market?" »

December 05, 2013

Introducing the FRBNY Survey of Consumer Expectations: Labor Market Expectations

Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar

Note: We aren’t releasing the underlying data yet, but we’ll be making them available to the public sometime in first-quarter 2014. So please stay tuned.

In the previous two blog postings in this series, we described the goals, structure, and content of the new FRBNY Survey of Consumer Expectations (SCE) and presented some findings regarding inflation expectations. In this third posting, we focus on the labor market component of the SCE.

Continue reading "Introducing the FRBNY Survey of Consumer Expectations: Labor Market Expectations" »

Posted by Blog Author at 7:00 AM in Household Finance, Monetary Policy | Permalink | Comments (0)

December 04, 2013

Introducing the FRBNY Survey of Consumer Expectations: Measuring Price Inflation Expectations

Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar

Note: We aren’t releasing the underlying data yet, but we’ll be making them available to the public sometime in first-quarter 2014. So please stay tuned.

In this second of a series of four blog postings, we discuss the data on inflation expectations collected in our new FRBNY Survey of Consumer Expectations (SCE). Inflation expectations are a key consideration for monetary policy as they are believed to influence consumer behavior, thereby affecting economic activity and actual inflation. The SCE data on inflation expectations represent a major innovation as they contain information not previously collected from consumers on a regular basis. In this post, we provide some background on the survey and present some initial findings.

Continue reading "Introducing the FRBNY Survey of Consumer Expectations: Measuring Price Inflation Expectations" »

Posted by Blog Author at 7:05 AM in Household Finance, Monetary Policy | Permalink | Comments (0)

December 02, 2013

Who’s Lending in the Fed Funds Market?

Gara Afonso, Alex Entz, and Eric LeSueur

The fed funds market is important to the framework and implementation of U.S. monetary policy. The Federal Open Market Committee sets a target level or range for the fed funds rate and directs the Trading Desk of the New York Fed to create “conditions in reserve markets” that will encourage fed funds to trade at the target level. In this post, we use various publicly available data sources to estimate the size and composition of fed funds lending activity. We find that the fed funds market has shrunk considerably since the financial crisis and that lending activity is now dominated by one group of market participants.


Continue reading "Who’s Lending in the Fed Funds Market?" »

November 27, 2013

Has the Fed Stabilized the Price Level?

Marc P. Giannoni and Hannah Herman

The Federal Reserve Reform Act of 1977 established the monetary policy objectives of maximum employment, stable prices, and moderate long-term interest rates. The goal of “stable prices” has long been understood to mean a low positive inflation rate. On January 25, 2012, the Federal Open Market Committee (FOMC) explicitly defined its price stability mandate in terms of a longer-run goal of 2 percent inflation measured by the total personal consumption expenditure (PCE) deflator. Here, we examine how the behavior of inflation over different time periods compares to this goal. We then discuss how the goal of stabilizing inflation over the long run, rather than on a year-after-year basis, tends to imply a stabilization of the U.S. price level around a trend line—an outcome similar to that from price-level targeting, which offers various theoretical benefits.

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Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (1)

November 25, 2013

A Way With Words: The Economics of the Fed’s Press Conference

Fernando Duarte and Carlo Rosa

When central bankers speak, traders, journalists, and politicians listen with bated breath. The marked asset price reaction to Chairman Bernanke’s June press conference confirms the importance of his comments in the marketplace.

Continue reading "A Way With Words: The Economics of the Fed’s Press Conference" »

Posted by Blog Author at 7:00 AM in Financial Markets, Monetary Policy | Permalink | Comments (1)

November 13, 2013

On the Design of Monetary and Macroprudential Policies

Bianca De Paoli

The financial crisis, recession, and slow recovery have emphasized the interactions between financial markets and the real economy. These developments have also motivated macroeconomists, central bankers, and financial regulators to think of new policy instruments that could help limit “systemic” or “systemwide” financial risks, as the Bank for International Settlements and the Financial Stability Board describe them. But apart from finding the right tools, policymakers are also interested in understanding how such instruments should be set in conjunction with monetary policy. In this post, we discuss the issues that arise when deciding how to design institutions for monetary and macroprudential policymaking. It turns out that the answer to this question hinges on a key issue in monetary policy: the ability of a decisionmaker to make binding commitments regarding his or her future behavior.

Continue reading "On the Design of Monetary and Macroprudential Policies" »

Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (0)

September 30, 2013

Crisis Chronicles: The “Not So Great” Re-Coinage of 1696

James Narron and David Skeie

In the late 1600s, England operated a bi-metallic monetary system of high-value gold coins and lower-value silver coins. In the early 1690s, however, the market price of silver began to rise at a time when the mint price of gold was higher than the market price. Thus, gold bullion was flowing to the mint while silver coins were flowing to the commodity markets. By 1695, nearly half of the silver specie was missing from coin in circulation in England as coins were “clipped” (shaved) with the result that their face value no longer reflected the metal content. Ironically, low-weight coin was still accepted for tax payments. In this post, we recount England’s efforts to remedy the “ill state of the coin of the kingdom” during the re-coinage of 1696.

Continue reading "Crisis Chronicles: The “Not So Great” Re-Coinage of 1696" »

Posted by Blog Author at 7:00 AM in Crisis Chronicles , Economic History, Monetary Policy | Permalink | Comments (0)
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