205 posts on "Monetary Policy"
June 1, 2011
Commodity Prices and the Mistake of 1937: Would Modern Economists Make the Same Mistake?
In 1937, on the eve of a major policy mistake, U.S. economic conditions were surprisingly similar to those in the nation today. Consider, for example, the following summary of economic conditions: (1) Signs indicate that the recession is finally over. (2) Short-term interest rates have been close to zero for years but are now expected to rise. (3) Some are concerned about excessive inflation. (4) Inflation concerns are partly driven by a large expansion in the monetary base in recent years and by banks’ massive holding of excess reserves. (5) Furthermore, some are worried that the recent rally in commodity prices threatens to ignite an inflation spiral.
May 31, 2011
Did Unconventional Policy Responses to the Crisis Work? Evidence from a Cross‑Country Analysis
The 2008-09 global recession produced a significant loss of output and a deflationary scare in many countries. The depth, scale, and duration of the crisis triggered monetary and fiscal policy actions that were “unconventional” in terms of their size and scope, leading to an ongoing debate over the role that these policy responses played in the stabilization process. How and to what extent were these policies effective? In this post, we examine cross-country experiences and find evidence consistent with the idea that the policies contributed to the stabilization process through their effect on expectations of output and inflation.
Posted at 10:00 am in Euro Area, Expectations, Inflation, Macroeconomics, Monetary Policy | Permalink
May 18, 2011
Will the Federal Reserve’s Asset Purchases Lead to Higher Inflation?
A common refrain among critics of the Federal Reserve’s large-scale asset purchases (“LSAPs”) of Treasury securities is that the Fed is simply printing money to purchase the assets, and that this money growth will lead to much higher inflation. Are those charges accurate? In this post, I explain that the Fed’s asset purchases do not necessarily lead to higher money growth, and that the Fed’s ability (since 2008) to pay interest on banks’ reserves provides a critical new tool to constrain future money growth. With this innovation, an increase in bank reserves no longer mechanically triggers a series of responses that could lead to excessive money growth and higher inflation.
May 4, 2011
How Much Will the Second Round of Large‑Scale Asset Purchases Affect Inflation and Unemployment?
With the federal funds rate at the zero lower bound, the Fed’s large-scale purchase of Treasury securities provides an alternative tool to boost the economy. In November 2010, the Federal Open Market Committee (FOMC) announced a second round of large-scale asset purchases (LSAP2) with the goal of accelerating the recovery. In this post, we analyze the impact of LSAP2 on the two variables that fall under the Fed’s dual mandate: inflation and unemployment. Our point estimates suggest that the effects will be moderate and delayed, although there is considerable uncertainty attached to these estimates.
Posted at 10:00 am in Exchange Rates, Fed Funds, Inflation, Macroeconomics, Monetary Policy, Treasury, Unemployment | Permalink
April 13, 2011
Why Did U.S. Branches of Foreign Banks Borrow at the Discount Window during the Crisis?
To help contain the economic damage caused by the recent financial crisis, the Federal Reserve extended large amounts of liquidity to financial firms through traditional lending facilities such as the discount window as well as through newly designed facilities. Recently released Federal Reserve data on discount window borrowing show that some U.S. branches and agencies of foreign banks were among the most active users of the window. In this post, we explain why U.S. branches borrow at the discount window. We also discuss two main reasons why these branches had a large need for dollars during the crisis and how discount window loans to them helped stabilize the financial system and the real economy in the United States.
Posted at 10:00 am in Banks, Fed Funds, Financial Institutions, Monetary Policy | Permalink | Comments (2)
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