Forecasting with the FRBNY DSGE Model
The term DSGE, which stands for dynamic stochastic general equilibrium, encompasses a very broad class of macro models, from the standard real business cycle (RBC) model of Nobel prizewinners Kydland and Prescott to New Keynesian monetary models like the one of Christiano, Eichenbaum, and Evans.
Why Didn’t Inflation Collapse in the Great Recession?
GDP contracted 4 percent from 2008:Q2 to 2009:Q2, and the unemployment rate peaked at 10 percent in October 2010.
Inflation in the Great Recession and New Keynesian Models
Since the financial crisis of 2007-08 and the Great Recession, many commentators have been baffled by the “missing deflation” in the face of a large and persistent amount of slack in the economy.
Financial Stability Monitoring
In a recently released New York Fed staff report, we present a forward-looking monitoring program to identify and track time-varying sources of systemic risk.
Risk Aversion and the Natural Interest Rate
One way to assess the stance of monetary policy is to assert that there is a natural interest rate (NIR), defined as the rate consistent with output being at its potential. Broadly speaking, monetary policy can be seen as expansionary if the policy rate is below the NIR with the gap between the rates measuring the extent of the policy stimulus. Of course, there are many challenges in defining and measuring the NIR, with various factors driving its value over time. A key factor that needs to be considered is the effect of uncertainty and risk aversion on households’ savings decisions. Households’ tolerance for risk tends to be lower during downturns, putting upward pressure on precautionary savings, and thereby downward pressure on the natural interest rate. In addition, uncertainty dictates how much precautionary savings responds to changes in risk aversion. So policymakers need to be aware that rate moves to offset adverse economic conditions that are appropriate in tranquil times may not be sufficient in times of high uncertainty.
Just Released: The 2013 SOMA Annual Report in a Historical Context
Alyssa Cambron, Michael Fleming, Deborah Leonard, Grant Long, and Julie Remache In August 2013, we wrote a series of blog posts on the use of the Federal Reserve’s System Open Market Account (SOMA) portfolio in monetary policy operations. Since the onset of the financial crisis, the Federal Open Market Committee (FOMC) has increased the size […]
Risk Aversion, Global Asset Prices, and Fed Tightening Signals
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.
How Unconventional Are Large‑Scale Asset Purchases?
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.
Who’s Borrowing in the Fed Funds Market?
The federal funds market plays an important role in the implementation of monetary policy.
Who’s Lending in the Fed Funds Market?
The federal funds market is important to the framework and implementation of U.S. monetary policy.