The relationship between the daily and policy-relevant liquidity effects
The phrase "liquidity effect" was introduced by Milton Friedman (1969) to describe the first of three effects on interest rates caused by an exogenous change in the money supply. The lack of empirical support for the liquidity effect using monthly and quarterly monetary and reserve aggregates data led Hamilton (1997) to suggest that more convincing evidence of the liquidity effect could be obtained with daily data - the daily liquidity effect. This paper investigates the implications of the daily liquidity effect for Friedman's liquidity effect using a more comprehensive model of the ...
Open market operations and the federal funds rate
It is commonly believed that the Fed's ability to control the federal funds rate stems from its ability to alter the supply of liquidity in the overnight market through open market operations. This paper uses daily data compiled by the author from the records of the Trading Desk of the Federal Reserve Bank of New York over the period March 1, 1984, through December 31, 1996: He analyzes the Desk's use of its operating procedure in implementing monetary policy and the extent to which open market operations affect the federal funds rate-the liquidity effect. The author finds that the operating ...
The Fed's inflation objective
Monetary policy and longer-term rates: an opportunity for greater transparency
The FOMC?s two-pronged approach involves a potential conflict: forward guidance assumes a high degree of substitutability across the maturity structure, while quantitative easing assumes a low degree.
The importance of an asymmetric directive
Housing and the \"R\" word
The relationship between the federal funds rate and the Fed's federal funds rate target: is it open market or open mouth operations?
It is widely believed that the Fed controls the funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the federal funds rate. Recently, however, several economists have suggested that open market operations may not be necessary for controlling the funds rate. Rather, they suggest that the Fed controls the funds rate through open mouth operations. The Fed merely indicates its desire to change the funds rate and the market does the rest. This paper investigates the extent to which the close relationship between the ...