Forecasting Interest Rates over the Long Run

Tobias Adrian, Richard Crump, Peter Diamond, and Rui Yu



In a previous post, we showed how market rates on U.S. Treasuries violate the expectations hypothesis because of time-varying risk premia. In this post, we provide evidence that term structure models have outperformed direct market-based measures in forecasting interest rates. This suggests that term structure models can play a role in long-run planning for public policy objectives such as assessing the viability of Social Security.

Historical Echoes: The Fed’s Cuban Connection

Mary Tao



Did you know that the Federal Reserve once had not one, but two offices in Cuba?

In the early years of the twentieth century, U.S. currency was in wide circulation in the Caribbean nation, a legacy of the Spanish-American War. But that had become a problem.

Implementing Monetary Policy Post-Crisis: What Do We Need to Know?

Antoine Martin, Patricia Mosser, and Julie Remache

Columbia University’s School of International and Public Affairs and the New York Fed co-sponsored a recent workshop to discuss important issues related to monetary policy implementation. The May 4 event, held at Columbia, supports the extended effort that the Federal Reserve has undertaken to evaluate potential long-run monetary policy implementation frameworks, which was announced at a Federal Open Market Committee meeting last July.

Could Liquidity Regulation Revive the Bank Lending Channel?

Dong Beom Choi and Ulysses Velasquez



How does monetary policy affect spending in the economy? The economic literature suggests two main channels of monetary transmission: the money or interest rate channel and the bank lending channel. The first view focuses on changes in real interest rates resulting from a shift in monetary policy and corresponding responses in consumption, saving, and investment. The second view focuses on changes in the supply of bank credit resulting from an altered policy stance and concomitant changes in spending.

How Have High Reserves and New Policy Tools Reshaped the Fed Funds Market?

Gara Afonso and Sam Stern

Over the last decade, the federal funds market has evolved to accommodate new policy tools such as interest on reserves and the overnight reverse repo facility. Trading motives have also responded to the expansion in aggregate reserves as the result of large-scale asset purchases. These changes have affected market participants differently since, for instance, not all institutions are required to keep reserves at the Fed and some are not eligible to earn interest on reserves. Differential effects have changed the profile of participants willing to borrow and lend in this market, and this shift provides an opportunity to study how unconventional policy actions shape participant incentives. In today’s post, we take a detailed look at regulatory filings to identify the main players in today’s fed funds market and understand how their roles have evolved.

Hey, Economist! Why—and When—Did the Treasury Embrace Regular and Predictable Issuance?

A Conversation with Ken Garbade



Few people know the Treasury market from as many angles as Ken Garbade, a senior vice president in the Money and Payments Studies area of the New York Fed’s Research Group. Ken taught financial markets at NYU’s graduate school of business for many years before heading to Wall Street to assume a position in the research department of the primary dealer division of Bankers Trust Company. At Bankers, Ken conducted relative-value research on the Treasury market, assessing how return varies relative to risk for particular Treasury securities. For a time, he also traded single-payment Treasury obligations known as STRIPS—although not especially successfully, he notes.