Search Results
Working Paper
The Causal Effect of Debt on Interest Rates
This paper uses a natural experiment to measure the causal effect of an expected debt-financed fiscal stimulus on interest rates. We find that a 1 percentage point increase in the expected US debt-to-GDP ratio leads to an increase of about 1-2 basis points in the longer-run neutral rate (r∗) and of about 2–3 basis points in the 10-year Treasury term premium. Our results validate estimates from a common time-series approach that regresses long-term forward interest rates on long-term projections of government debt, where the exclusion restriction does not apply.
Discussion Paper
Measurement of “Computer Software and Accessories” Inflation
From November 2025 to March 2026, the "Computer Software and Accessories" category of the Personal Consumption Expenditures (PCE) price index made an unprecedented contribution to the rise in core and core goods inflation. Figure 1 shows the historical average since 2000 for core and core goods inflation while excluding software (blue bars) along with the contribution of software (gray bars).
Working Paper
The Swaps Strike Back: Evaluating Expectations of One-Year Inflation
This study examines the forecasting performance of inflation swaps and survey-based expectations for one-year inflation. Conducting this exercise helps determine if one set of expectations can provide a cleaner signal about future inflation. The study finds that, overall, inflation swaps more frequently provide better forecasts of future inflation. Previous studies that found poor performance of swaps were strongly influenced by liquidity issues during the financial crisis and the pandemic. When these periods are excluded, swaps have superior predictive ability. Our analysis suggests that ...
Working Paper
A User’s Guide to Reducing the Federal Reserve’s Balance Sheet
For the avoidance of doubt: 1) This catalogue presents and analyzes a variety of options for reducing the Federal Reserve’s balance sheet. Nothing here is an endorsement of any specific policy option; this is a menu of options. Combined, we estimate these options open the door to balance sheet reduction of $1.2 to $2.1 trillion within the Fed’s current ample reserves framework. Further reductions would be possible with a return to scarce reserves. 2) The process of materially shrinking the balance sheet would require a great deal of implementation and rulemaking work in advance and will ...
Discussion Paper
The Treasury Tantrum of 2023
In the second half of last year, the 10-year Treasury yield skyrocketed from below 4 percent to above 5 percent, and then back down to 3.9 percent (Figure 1). On the way up, market commentary cited several key drivers for the rapid increase, including strong employment and inflation data, unexpectedly high Treasury issuance, and FOMC communications indicating that rates may need to be higher for longer.
Working Paper
The Equity Premium, Long-Run Risk, & Optimal Monetary Policy
In this study I examine the welfare implications of monetary policy by constructing a novel New Keynesian model that properly accounts for asset pricing facts. I find that the Ramsey optimal monetary policy yields an inflation rate above 3.5% and inflation volatility close to 1.5%. The same model calibrated to a counterfactually low equity premium implies an optimal inflation rate close to zero and inflation volatility less than 10 basis points, consistent with much of the existing literature. Relatively higher optimal inflation is due to the greater welfare costs of recessions associated ...