Liberty Street Economics
Return to Liberty Street Economics Home Page

76 posts on "Monetary Policy"

August 27, 2015

From the Vault: Supplementing a Monetary Policy Syllabus



LSE_2015-monetary-policy-advice_mccarthy-460

The San Francisco Fed’s John Williams gave an interesting speech awhile back on the challenge of teaching economics after the financial crisis, since the Federal Reserve had deployed new monetary policy and lending tools that “were not found in any textbook.”

Continue reading "From the Vault: Supplementing a Monetary Policy Syllabus" »

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

August 14, 2015

The Monetary Policy Advice Process at the New York Fed



LSE_2015-monetary-policy-advice_mccarthy-450

The Research Group at the New York Fed, like the research divisions at the other regional Feds, is charged with providing advice on monetary policy to the Bank president. In addition, the role of research at this institution is related to two features of the New York Fed: first, the New York Fed president is a voting member of the Federal Open Market Committee (FOMC), and second, the Open Market Desk located at the New York Fed implements the policy decisions of the FOMC. In this post, we provide a brief introduction to the process whereby research economists, collaborating with staff in the Markets Group and the Integrated Policy Analysis [IPA] Group, provide policy advice to the Bank president. Because the FOMC meeting is the focus for monetary policy advice within the Fed, our discussion of the policy process will be organized around the FOMC cycle.

Continue reading "The Monetary Policy Advice Process at the New York Fed" »

Posted by Blog Author at 10:00 AM in Monetary Policy | Permalink | Comments (0)

August 12, 2015

Do Asset Purchase Programs Push Capital Abroad?

Thomas Klitgaard and David Lucca

LSE_2015_asset-purchase_lucca_450_art

Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows.

Continue reading "Do Asset Purchase Programs Push Capital Abroad?" »

June 08, 2015

The Myth of First-Quarter Residual Seasonality



Residual Seasonality

The current policy debate is influenced by the possibility that the first-quarter GDP data were affected by “residual seasonality.” That is, the statistical procedures used by the Bureau of Economic Analysis (BEA) did not fully smooth out seasonal variation in economic activity. If this is indeed the case, then the weak readings of the economy in the first quarter give an inaccurate picture of the state of the economy. In this post, we argue that unusually adverse winter weather, rather than imperfect seasonal adjustment by the BEA, was an important factor behind the weak first-quarter GDP data.

Continue reading "The Myth of First-Quarter Residual Seasonality" »

Posted by Blog Author at 7:02 AM in Macroecon, Monetary Policy | Permalink | Comments (2)

May 27, 2015

The Eurodollar Market in the United States



LSE_2015_eurodollar_cipriani_450_art


In February, the Federal Reserve Bank of New York’s trading desk announced it will publish a new overnight bank funding rate early next year. The new rate will be based on both federal funds and Eurodollar transactions reported in a new data collection—the FR 2420 Report of Selected Money Market Rates. In a previous post, we explained how FR 2420 fed funds transaction data will replace brokered data as the base for the fed funds effective rate. This post provides insights on the Eurodollar market in advance of the publication of the overnight bank funding rate.


Continue reading "The Eurodollar Market in the United States" »

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

May 20, 2015

Why Are Interest Rates So Low?



Second post in the series
In a recent series of blog posts, the former Chairman of the Federal Reserve System, Ben Bernanke, has asked the question: “Why are interest rates so low?” (See part 1, part 2, and part 3.) He refers, of course, to the fact that the U.S. government is able to borrow at an annualized rate of around 2 percent for ten years, or around 3 percent for thirty years. If you expect that inflation is going to be on average 2 percent over the next ten or thirty years, this implies that the U.S. government can borrow at real rates of interest between 0 and 1 percent at the ten- and thirty-year maturities. This phenomenon is by no means limited to the United States. Governments in Japan and Germany are able to borrow for ten years at nominal rates below 1 percent, and the ten-year yield on Swiss government debt is slightly negative. Why is that?

Continue reading "Why Are Interest Rates So Low?" »

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

May 18, 2015

The FRBNY DSGE Model Forecast--April 2015



First in a two-part series

There are various types of economic forecasts, such as judgmental forecasts or model-based forecasts. In this post, we provide an update of the economic forecasts implied by the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model, which we introduced in a series of five blog posts in September 2014 here. It continues to predict a gradual recovery in economic activity with a progressive but slow return of inflation toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent. This forecast remains surrounded by significant uncertainty. Please note that the DSGE model forecasts are not the official New York Fed staff forecasts, but only an input to the overall forecasting process at the Bank.

Continue reading "The FRBNY DSGE Model Forecast--April 2015 " »

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

May 15, 2015

Just Released: The New York Fed Staff Forecast, May 2015



LSE_2015_jr-staff-econ-forecast_mccarthy-450_art


Today, the Federal Reserve Bank of New York (FRBNY) is hosting the spring meeting of its Economic Advisory Panel (EAP). As has become custom at this meeting, FRBNY staff are presenting their forecast for U.S. growth, inflation, and unemployment through the end of 2016. Following the presentation, members of the EAP, which consists of leading economists in academia and the private sector, are asked to discuss the staff forecast. Such feedback helps the staff evaluate the assumptions and reasoning underlying the forecast and the key risks to it. Subjecting the staff forecast to periodic evaluation is also important because it informs the staff’s discussions with New York Fed President William Dudley about economic conditions. In that same spirit, we are sharing a short summary of the staff forecast in this post.  For more detail, please see the material from the EAP meeting on our website.

Continue reading "Just Released: The New York Fed Staff Forecast, May 2015" »

Posted by Blog Author at 10:30 AM in Macroecon, Monetary Policy | Permalink | Comments (0)

May 04, 2015

Interest-Bearing Securities When Interest Rates are Below Zero



Note: A PDF version of this post fully documents the authors’ sources.

Negative interest rates have evolved, over the past few years, from a topic of modest academic interest to a practical reality. Short- and intermediate-term sovereign debt of several European countries, including Germany, Denmark, the Netherlands, Sweden, Austria, and Switzerland, now trades at negative yields.

Continue reading "Interest-Bearing Securities When Interest Rates are Below Zero" »

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

April 15, 2015

Please Read This before Betting against Government Bond Betas



Mounting evidence says that “low-risk” investing delivers superior returns, comparable to strategies based on value, size, and momentum. Such tactics include the “risk parity” (RP) asset allocation approach, which received considerable attention during the 2013 taper tantrum when many RP funds reportedly deleveraged. This strategy requires long or overweight positions in low-risk asset classes, such as government bonds, and offsetting short or underweight positions in risky asset classes, including shares. The low-risk umbrella also covers “betting against beta” (BAB) within, rather than across, asset classes. For example, investing in shorter- as opposed to longer-duration bonds beats the bond market, or owning low-beta at the expense of high-beta shares outpaces the S&P 500. Whether RP or BAB, what matters is return per unit of risk, the bang for the buck. Put more formally, RP and BAB profitability rests on an inverse relation between Sharpe ratios (SRs) and beta, the covariance of asset returns with the market portfolio. Such findings contradict the intuition that higher returns compensate for risk. Instead, investors profit handsomely by levering up relatively safe assets and shorting comparatively risky securities. However, as my New York Fed staff report argues, alternative reasoning and samples, as well as the types and number of “risks,” raise questions about not only BAB with government bonds (BABgov) but perhaps also RP. The investment implications are obvious, but the arguments and underlying data patterns also hint at key policy issues.

Continue reading "Please Read This before Betting against Government Bond Betas" »

Posted by Blog Author at 7:00 AM in Financial Markets, Monetary Policy | Permalink | Comments (0)
About the Blog
Liberty Street Economics features insight and analysis from economists working at the intersection of research and policy.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

LSE in the News

Access to linked content may require a subscription.

Most Viewed
Upcoming Posts

Useful Links
Feedback & Comment Guidelines
Liberty Street Economics invites you to comment on a post.
Comment Guidelines
We encourage you to submit comments, queries and suggestions on our blog entries. We will post them below the entry, subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted more than 1 week after the blog entry appears will not be posted.
Please try to submit before COB on Friday: Comments submitted after that will not be posted until Monday morning.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. The moderator will not post comments that are abusive, harassing, or threatening; obscene or vulgar; or commercial in nature; as well as comments that constitute a personal attack.  We reserve the right not to post a comment; no notice will be given regarding whether a submission will or will not be posted.
Archives