Search Results
Journal Article
Accounting for the bond-yield conundrum
Long-term interest rates tend to rise as monetary policymakers increase short-term interest rates. This relationship didn't hold, however, during the recent U.S. monetary policy tightening cycle. Between June 2004 and June 2006, the Federal Open Market Committee increased the federal funds rate 17 times - going from 1 percent to 5.25 percent. Yet, long-term interest rates declined or stayed flat until early 2006. ; This divergence between short- and long-term interest rates caught many economists, investors and central bankers by surprise. In his Feb. 16, 2005, congressional testimony, former ...
Journal Article
The Term Auction Facility’s effectiveness in the financial crisis of 2007–09
During the global financial crisis of 2007-2009, financial markets experienced tremendous strains, and the cost of short-term funding rose sharply. In response, several central banks around the world created new lending facilities to quickly provide liquidity to the banking sector and improve market functioning. The list includes the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank. On Dec. 12, 2007, the Federal Reserve established its version?the term auction facility (TAF). ; Researchers have yet to reach a consensus on the effectiveness of such facilities. ...
Journal Article
Globalization’s effect on interest rates and the yield curve
Globalization?s impact on the relationship between short- and long-term interest rates poses potentially formidable challenges for central banks around the world. It underscores the importance of formulating monetary policy in a credible, consistent and forward-looking way and better communicating it to the public. Adopting these virtues will help anchor long-run inflationary expectations and decrease associated risk premiums. It will also help the public better understand central banks? behavior and decrease the perceived uncertainty of future monetary policy. Globalization may also call for ...
Working Paper
Measuring oil-price shocks using market-based information
We study the effects of oil-price shocks on the U.S economy combining narrative and quantitative approaches. After examining daily oil-related events since 1984, we classify them into various event types. We then develop measures of exogenous shocks that avoid endogeneity and predictability concerns. Estimation results indicate that oil-price shocks have had substantial and statistically significant effects during the last 25 years. In contrast, traditional VAR approaches imply much weaker and insignificant effects for the same period. This discrepancy stems from the inability of VARs to ...
Working Paper
Regulation and the neo-Wicksellian approach to monetary policy
Laubach and Williams (2003) employ a Kalman filter approach to jointly estimate the neutral real federal funds rate and trend output growth using an IS relationship and an output gap based inflation equation. They find a positive link between these two variables, but also much error surrounding neutral real rate estimates. We modify their approach by including variables for regulations on deposit interest rates and on wages and prices. These variables are statistically significant and notably affect estimates of two policy relevant coefficients: the sensitivity of output to the real interest ...
Working Paper
On the effectiveness of the Federal Reserve's new liquidity facilities
This paper examines the effectiveness of the new liquidity facilities that the Federal Reserve established in response to the recent financial crisis. I develop a no-arbitrage based affine term structure model with default risk and conduct a thorough factor analysis of the counterparty default risk among major financial institutions and the underlying mortgage default risk. The new facilities' effectiveness is examined, by first separately examining their effects in relieving financial institutions' liquidity concerns and reducing the counterparty risk premiums, and then quantifying their ...
Journal Article
Estimating the "neutral" real interest rate in real time
On September 20, the Federal Open Market Committee, the nation's monetary policymaking body, raised its target level of the federal funds rate by 25 basis points, the eleventh straight increase over the last fifteen months. The statement released immediately after the meeting said, "With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." The statement ...
Journal Article
Macroeconomic models for monetary policy
This Economic Letter summarizes the papers presented at the conference "Macroeconomic Models for Monetary Policy" held at the Federal Reserve Bank of San Francisco on March 1-2, 2002, under the joint sponsorship of the Federal Reserve Bank of San Francisco and the Stanford Institute for Economic Policy Research
Journal Article
What makes the yield curve move?
Journal Article
Improving the way we measure consumer prices