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Working Paper
Considerations Regarding Inflation Ranges
We consider three ways that a monetary policy framework may employ a range for inflation outcomes: (1) ranges that acknowledge uncertainty about inflation outcomes (uncertainty ranges), (2) ranges that define the scope for intentional deviations of inflation from its target (operational ranges), and (3) ranges over which monetary policy will not react to inflation deviations (indifference ranges). After defining these three ranges, we highlight a number of costs and benefits associated with each. Our discussion of the indifference range is accompanied by simulations from the FRB/US model, ...
Discussion Paper
Optimal Monetary Policy in a DSGE Model with Attenuated Forward Guidance Effects
In this article, we explore the implications of attenuating the power of forward guidance for the optimal conduct of forward guidance policy in a quantitative DSGE model of the U.S. economy.
Working Paper
Monetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy Toolkit
We simulate the FRB/US model and a number of statistical models to quantify some of the risks stemming from the effective lower bound (ELB) on the federal funds rate and to assess the efficacy of adjustments to the federal funds rate target, balance sheet policies, and forward guidance to provide monetary policy accommodation in the event of a recession. Over the next decade, our simulations imply a roughly 20 to 50 percent probability that the federal funds rate will be constrained by the ELB at some point. We also find that forward guidance and balance sheet polices of the kinds used in ...
Working Paper
Monetary and fiscal policy switching
A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. A computational model illustrates that ...
Working Paper
Have we underestimated the likelihood and severity of zero lower bound events?
Before the recent recession, the consensus among researchers was that the zero lower bound (ZLB) probably would not pose a significant problem for monetary policy as long as a central bank aimed for an inflation rate of about 2 percent; some have even argued that an appreciably lower target inflation rate would pose no problems. This paper reexamines this consensus in the wake of the financial crisis, which has seen policy rates at their effective lower bound for more than two years in the United States and Japan and near zero in many other countries. We conduct our analysis using a set of ...
Working Paper
Latent Variables Analysis in Structural Models: A New Decomposition of the Kalman Smoother
This paper advocates chaining the decomposition of shocks into contributions from forecast errors to the shock decomposition of the latent vector to better understand model inference about latent variables. Such a double decomposition allows us to gauge the inuence of data on latent variables, like the data decomposition. However, by taking into account the transmission mechanisms of each type of shock, we can highlight the economic structure underlying the relationship between the data and the latent variables. We demonstrate the usefulness of this approach by detailing the role of ...