From the Vault: Does Forward Guidance Work?

Anna Snider

In recent months, there have been some high-profile assessments of how far the Federal Reserve has come in terms of communicating about monetary policy since its “secrets of the temple” days. While observers say the transition to greater transparency “still seems to be a work in progress,” they note the range of steps the Fed has taken over the years to shed light on its strategy, including issuing statements to announce and explain policy changes following Federal Open Market Committee (FOMC) meetings, post-meeting press conferences and minutes, FOMC-member speeches and testimony, and “forward guidance” in all its variants.

Hey, Economist! How Is the Research and Statistics Group Changing?

An interview with Jamie McAndrews



As Director of Research for the New York Fed for the past seven years, Jamie McAndrews has been responsible for the Bank’s financial and economic policy research, as well as the collection of data and statistics from financial institutions. On the eve of his retirement on June 30, Jamie shared his perspective on how the Research and Statistics Group has changed with Andrew Haughwout, a senior vice president in the Group.

The Macro Effects of the Recent Swing in Financial Conditions

Marco Del Negro, Marc Giannoni, and Micah Smith

Credit conditions tightened considerably in the second half of 2015 and U.S. growth slowed. We estimate the extent to which tighter credit conditions last year were responsible for the slowdown using the FRBNY DSGE model. We find that growth would have slowed substantially more had the Federal Reserve not delayed liftoff in the federal funds rate.

The FRBNY DSGE Model Forecast—May 2016

Stefano Eusepi, Erica Moszkowski, and Argia Sbordone

The May 2016 forecast of the Federal Reserve Bank of New York’s (FRBNY) dynamic stochastic general equilibrium (DSGE) model remains broadly in line with those of our two previous semiannual reports (see our May 2015 and December 2015 posts). In the past year, the headwinds that contributed to slower growth in the aftermath of the financial crisis finally began to abate. However, the widening of credit spreads associated with swings in financial markets in the second half of 2015 and the first few months of this year have had a negative impact on economic activity. Despite this setback, the model expects a rebound in growth in the second half of the year, so that the medium-term forecast remains, as in the December post, one of steady, gradual economic expansion. The model also continues to predict gradual progress in the inflation rate toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent.

Happy Fifth Birthday, LSE!

Jamie McAndrews



When we launched our research blog five years ago this week, we didn’t expect to set any internet traffic records while writing about economics. Still, we saw that a blog would be a good way to build familiarity with our research and policy analysis, and to share the expertise of our staff when it’s relevant to issues in the public eye. As I said back at the birth, our goal was to deliver “lively, clear, and analytically sound” posts and, in that, I think we have succeeded.

From the Vault: The Path of Interest Rates

Anna Snider

In recent speeches, the Federal Reserve’s Janet Yellen and Lael Brainerd explained how policymakers are likely to take a cautious approach to normalizing monetary policy given historically low estimates for the natural rate of interest and expectations that the rate will rise only gradually over time.

The FRBNY DSGE Model Meets Julia

Marco Del Negro, Marc Giannoni, Pearl Li, Erica Moszkowski, and Micah Smith

We have implemented the FRBNY DSGE model in a free and open-source language called Julia. The code is posted here on GitHub, a public repository hosting service. This effort is the result of a collaboration between New York Fed staff and folks from the QuantEcon project, whose aim is to coordinate development of high performance open-source code for quantitative economic modeling.

The FRBNY DSGE Model Forecast—November 2015

Marco Del Negro, Marc Giannoni, Erica Moszkowski, Sara Shahanaghi, and Micah Smith

This post presents 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 first introduced in a series of blog posts in September 2014. The model continues to predict a gradual recovery in economic activity, but one that will proceed at a slightly slower pace than was forecast in our April update. It also predicts a 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.

How Much Do Inflation Expectations Matter for Inflation Dynamics?

Argia Sbordone and Sara Shahanaghi

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.

Why Are Interest Rates So Low?

Marco Del Negro, Marc Giannoni, Matthew Cocci, Sara Shahanaghi, and Micah Smith

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?