Liberty Street Economics
Return to Liberty Street Economics Home Page

82 posts on "Monetary Policy"

November 23, 2015

End of the Road? Impact of Interest Rate Changes on the Automobile Market


The Federal Reserve has kept interest rates at historic lows for the last six years, but eventually rates will return to their long-term averages. That means both policymakers and the public will once again be asking one of the classic questions in monetary economics: What are the impacts of rising interest rates on the real economy? Our recent New York Fed staff report “Interest Rates and the Market for New Light Vehicles,” considers this question for the U.S. market for new cars and light trucks. We find strong evidence that rising rates will dampen activity: Our model predicts that in the short-run a 100-basis-point increase in interest rates will cause light vehicle production to fall at an annual rate of 12 percent and sales to fall at an annual rate of 3.25 percent.

Continue reading "End of the Road? Impact of Interest Rate Changes on the Automobile Market" »

Posted by Blog Author at 7:00 AM in Macroecon, Monetary Policy | Permalink | Comments (3)

November 18, 2015

The Importance of Commodity Prices in Understanding U.S. Import Prices and Inflation


The dollar rose sharply against both the euro and yen in 2014 and 2015 and non-oil import prices subsequently fell. An explanation for this relationship is that a stronger dollar reduces the dollar-denominated cost of producing something in Germany or Japan, giving firms room to lower their dollar prices in order to gain sales against their U.S. competitors. A breakdown by type of good, however, shows that import prices for autos, consumer goods, and capital goods tend not to move much with changes in the dollar as foreign firms choose to keep the prices of their goods stable in the U.S. market. Instead, the connection between import prices and the dollar largely reflects the tendency for commodity prices to fall in dollar terms when the dollar strengthens. As a consequence, the dampening effect of a stronger dollar on U.S. inflation is transmitted much more through falling commodity prices than through cheaper imported cars and consumer goods.

Continue reading "The Importance of Commodity Prices in Understanding U.S. Import Prices and Inflation" »

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

November 16, 2015

Should Monetary Policy Respond to Financial Conditions?


There’s an ongoing debate about whether policymakers should respond to financial conditions when setting monetary policy. An argument is often made that financial stability concerns are more appropriately dealt with by using regulatory and macroprudential tools. This post offers a theoretical justification for policymakers to monitor and possibly respond to financial conditions not because this would lessen concerns about financial stability but because this information helps reveal the state of the economy and the appropriate stance of monetary policy.

Continue reading "Should Monetary Policy Respond to Financial Conditions?" »

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

November 09, 2015

The New Overnight Bank Funding Rate


The Federal Reserve Bank of New York will begin publishing the overnight bank funding rate (OBFR) sometime in the first few months of 2016. The OBFR will be a broad measure of U.S. dollar funding costs for U.S.-based banks as it will be calculated using both fed funds and Eurodollar transactions, as reported in a new data collection—the FR 2420 Report of Selected Money Market Rates. In a recent post, “The Eurodollar Market in the United States,” we described the Eurodollar activity of U.S.-based banks and compared recent fed funds and Eurodollar rates. Here, we look at the historical relationship between overnight fed funds and Eurodollars and compare the new OBFR rate to the fed funds rate.

Continue reading "The New Overnight Bank Funding Rate" »

Posted by Blog Author at 7:00 AM in Financial Markets, Household Finance, Monetary Policy | Permalink | Comments (2)

November 05, 2015

How Did Quantitative Easing Interact with Regional Inequality?


Income, or wealth, inequality is not something that central bankers generally worry about when setting monetary policy, the goals of which are to maintain price stability and promote full employment. Nevertheless, it is important to understand whether and how monetary policy affects inequality, and this topic has recently generated quite a bit of discussion and academic research, with some arguing that the Federal Reserve’s expansionary policy of recent years has exacerbated inequality (see, for instance, here or here), while others reach the opposite conclusion (see here or here). This disagreement can be attributed in part to the different channels through which expansionary monetary policy can affect inequality: its effect on asset prices would tend to increase inequality, while its effect on labor incomes and employment would likely decrease inequality. In this post, I study one particular channel through which Fed policies may have disparate effects—namely, mortgage refinancing—and I focus on dispersion across locations in the United States.

Continue reading "How Did Quantitative Easing Interact with Regional Inequality?" »

September 23, 2015

How Much Do Inflation Expectations Matter for Inflation Dynamics?

Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New Keynesian Phillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.

Continue reading "How Much Do Inflation Expectations Matter for Inflation Dynamics?" »

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

August 27, 2015

From the Vault: Supplementing a Monetary Policy Syllabus


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


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


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)
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.

Economic Research Tracker for iPad®

Liberty Street Economics is now available on the iPad® and can be customized by economic research topic or economist.

Most Viewed

Last 12 Months
LSE in the News

Access to linked content may require a subscription.

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.