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Journal Article
A history of the asymmetric policy directive
Journal Article
The Fed, liquidity, and credit allocation
The current financial turmoil has generated considerable discussion of liquidity. Moreover, it has been widely reported that the Federal Reserve played a major role in supplying liquidity to financial markets during this distressed time. This article describes two ways in which the Fed has supplied liquidity since late 2007. The first is traditional: The Fed supplies liquidity by providing credit through open market operations and by lending to depository institutions at the so-called discount window. The second is by enhancing the liquidity of portfolios of some institutions by replacing ...
Journal Article
The dual mandate: has the Fed changed its objective?
The Federal Reserve is said to have a dual mandate of price stability and full employment. While the Fed has mentioned price stability as one of its primary goals, it has been reluctant to mention employment as a separate policy objective, preferring instead to state that maximum employment could best be achieved by achieving price stability. This hesitance ended with the December 2008 policy directive in which the Federal Open Market Committee (FOMC) noted its objectives were ?maximum employment and price stability.? Operationally equivalent language first appeared in the FOMC?s policy ...
Journal Article
Social security, saving, and wealth accumulation
Journal Article
Testing the expectations hypothesis: some new evidence for Japan
The deregulation of the Japanese financial markets and the adoption of an interest rate policy instrument by the Bank of Japan prompted a number of empirical investigations of the expectation hypothesis (EH) of the term structures of interest rates in Japan. This paper is a continuation of this research. It deviates from the previous work on the EH in Japan in two respects. First, it tests the EH by estimating a general vector autoregression (VAR) of the long-term and short-term rates and testing the restrictions implied by the EH on the VAR using a Lagrange multiplier test. Second, the issue ...
Journal Article
Tests of the market's reaction to federal funds rate target changes
In this article, Daniel L. Thornton tests several hypotheses about the market's reactions to changes in the Federal Reserve's federal funds rate target. Thornton finds that short-term rates and long-term rates responded differently to funds rate target changes when target changes were accompanied by a change in the discount rate. He presents evidence that the smaller response of long-term rates (in these instances) is due to the market revising its inflation outlook when the target is changed. Thornton finds no evidence that the size of the market's response varies with the size of the target ...
Journal Article
Predictability and effectiveness of monetary policy
Journal Article
Interest rate targets abandoned
Journal Article
Making sense of dissents: a history of FOMC dissents
This article presents a record of dissents on Federal Open Market Committee (FOMC) monetary policy votes from the Committee?s inception in its modern form in 1936 through 2013. Dissents were rare during the Committee?s first 20 years but began to increase in the late 1950s. The number of dissents increased sharply during the late 1970s and early 1980s, when both inflation and unemployment were unusually high. However, at other times, the number of dissents was not correlated with either inflation or the unemployment rate. A review of FOMC records and published statements indicates that ...