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Journal Article
Discrete policy changes and empirical models of the federal funds rate
Empirical models of the federal funds rate almost uniformly use the quarterly or monthly average of the daily rates. One empirical question about the federal funds rate concerns the extent to which monetary policymakers smooth this interest rate. Under the hypothesis of rate smoothing, policymakers set the interest rate this period equal to a weighted average of the rate inherited from the previous quarter and the rate implied by current economic conditions, such as the Taylor rule rate. Perhaps surprisingly, however, little attention has been given to measuring the interest rate inherited ...
Journal Article
The Reform of October 1979: How It Happened and Why
This study offers a historical review of the monetary policy reform of October 6, 1979, and discusses the influences behind it and its significance. We lay out the record from the start of 1979 through the spring of 1980, relying almost exclusively on contemporaneous sources, including the recently released transcripts of Federal Open Market Committee (FOMC) meetings during 1979. We then present and discuss in detail the reasons for the FOMC?s adoption of the reform and the communications challenge presented to the Committee during this period. Further, we examine whether the essential ...
Working Paper
Retail sweep programs and bank reserves, 1994--1999
Since January 1994, the Federal Reserve Board has permitted depository institutions in the United States to implement so-called retail sweep programs. The essence of these programs is computer software that dynamically reclassifies customer deposits between transaction accounts, which are subject to statutory reserve requirement ratios as high as 10 percent, and money market deposit accounts, which have a zero ratio. Through the use of such software, hundreds of banks have sharply reduced the amount of their required reserves. In some cases, this new level of required reserves is less than ...
Journal Article
The FOMC's balance-of-risks statement and market expectations of policy actions
In January 2000, the Federal Open Market Committee (FOMC) instituted the practice of issuing a ?balance of risks? statement along with their policy decision immediately following each FOMC meeting. Robert H. Rasche and Daniel L. Thornton evaluate the use of the balance-of-risks statement and the market?s interpretation of it. They find that the balance-of-risks statement is one of the factors that market participants use to determine the likelihood that the FOMC will adjust its target for the federal funds rate at their next meeting. Moreover, they find that, on some occasions, the FOMC ...
Journal Article
On the costs and benefits of anti-inflation policies
Journal Article
Editor's introduction
Journal Article
The effectiveness of monetary policy
This analysis addresses changing views of the role and effectiveness of monetary policy, inflation targeting as an "effective monetary policy," monetary policy and short-run (output) stabilization, and problems in implementing a short-run stabilization policy.
Working Paper
Perfecting the market's knowledge of monetary policy
The rational expectations revolution made clear that a complete macro model requires a specification of the government's economic policy. We argue that monetary policy should be conducted in such a way that the market can predict policy actions. An implication of market success in predicting policy actions is that interest rates move ahead of the policy actions, and such a timing relationship may appear to some as the central bank following the market instead of leading it. Another implication of the market predicting policy actions is that nominal interest rate changes provide no useful ...
Journal Article
Views on deficits and interest rates