Discussion Paper
Unpredictable Recessions
Miller, David S. (2021-07-02)
This note shows forward term spreads provide little information about recessions more than a couple years ahead. In fact, forward term spreads are essentially equivalent to today's term spreads in their ability to accurately predict further-ahead recessions.
FEDS Notes , Paper 2021-07-02-1

Discussion Paper
Information and Liquidity in the Market for Foreign Currency Denominated Sovereign Bonds
Miller, David S. (2020-12-28)
This note finds a negative, non-linear relationship between bond yield and liquidity using data on Portuguese, Irish, Italian, Greek, and Spanish (PIIGS) sovereign bonds from 2010-2015. This relationship is predicted by the asymmetric information model of bond liquidity by Holmstrom (2015) and Gorton (2017).
FEDS Notes , Paper 2020-12-28

Report
A Monetary-Fiscal Theory of Sudden Inflations
Bassetto, Marco; Miller, David S. (2022-12-16)
This paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumers' behavior and prices. This setting explains why there can be long stretches of time during which government surpluses ...
Staff Report , Paper 641

Working Paper
A Monetary-Fiscal Theory of Sudden Inflations and Currency Crises
Miller, David S. (2021-08-24)
Treating nominal government bonds like other bonds leads to a new theory of sudden inflations and currency crises. Holmstrom (2015) and Gorton (2017) describe bonds as having costly-to-investigate opaque backing that consumers believe is sufficient for repayment. Government bonds' nominal return is their face value, their real return is determined by the government's surplus. In normal times, consumers are confident of repayment but ignorant of the true surpluses that will fund that repayment. When consumers' belief in real repayment wavers, they investigate surpluses. If consumers learn ...
Finance and Economics Discussion Series , Paper 2021-057

Working Paper
Intermeeting Rate Cuts as a Response to Rare Disasters
Miller, David S. (2020-08-28)
This paper measures the probability of rare disasters by measuring the probability of the intermeeting federal funds rate cuts they provoke. Differentiating between months with Federal Open Market Committee (FOMC) meetings and months without identifies excess returns on federal funds futures averaging -1.5 bps per horizon month-ahead at short horizons, corresponding to a 3-5% per month risk-neutral probability of an intermeeting rate cut. The excess returns differ between months with and without meetings, suggesting a positive risk premium associated with meetings. The federal funds excess ...
Finance and Economics Discussion Series , Paper 2020-076