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Working Paper
Considerations Regarding Inflation Ranges
Siemer, Michael; Doyle, Brian M.; Hebden, James; Chung, Hess T. (2020-08-27)
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, ...
Finance and Economics Discussion Series , Paper 2020-075

Journal Article
Did Communicating a Numerical Inflation Target Anchor U.S. Inflation Expectations?
Bundick, Brent; Smith, Andrew Lee (2018-01-17)
Macro Bulletin

Report
Comparing forecast-based and backward-looking Taylor rules: a "global" analysis
Eusepi, Stefano (2005-01-01)
This paper examines the performance of forecast-based nonlinear Taylor rules in a class of simple microfunded models. The paper shows that even if the policy rule leads to a locally determinate (and stable) inflation target, there exist other learnable "global" equilibria such as cycles and sunspots. Moreover, under learning dynamics, the economy can fall into a liquidity trap. By contrast, more backward-looking and "active" Taylor rules guarantee that the unique learnable equilibrium is the inflation target. This result is robust to different specifications of the role of money, price ...
Staff Reports , Paper 198

Working Paper
The Macroeconomic Risks of Undesirably Low Inflation
Arias, Jonas E.; Erceg, Christopher J.; Trabandt, Mathias (2016-04-12)
This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.
International Finance Discussion Papers , Paper 1162

Working Paper
From Taylor's Rule to Bernanke's Temporary Price Level Targeting
López-Salido, J. David; Hebden, James (2018-07-19)
Bernanke's strategies for integrating forward guidance into conventional instrument rules anticipate that effective lower bound (ELB) episodes may become part a regular occurrence and that monetary policy should recognize this likelihood (Bernanke (2017a); Bernanke (2017b)). Bernanke's first proposal is a form of flexible temporary price level targeting (TPLT), in which a lower-for-longer policy path is prescribed through a ?shadow rate?. This shadow rate accounts for cumulative shortfalls in inflation and output relative to exogenous trends, and the policy rate is kept at the ELB until the ...
Finance and Economics Discussion Series , Paper 2018-051

Working Paper
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
Crosignani, Matteo; Fonseca, Luis; Faria-e-Castro, Miguel (2017-01)
We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank?s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance ...
Finance and Economics Discussion Series , Paper 2017-011

Report
Overnight RRP operations as a monetary policy tool: some design considerations
Frost, Josh; Logan, Lorie; Martin, Antoine; McCabe, Patrick E.; Natalucci, Fabio M.; Remache, Julie (2015-02-01)
We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including ...
Staff Reports , Paper 712

Working Paper
Financial Vulnerabilities, Macroeconomic Dynamics, and Monetary Policy
Modugno, Michele; Liang, J. Nellie; Lehnert, Andreas; Aikman, David (2016-07-07)
We define a measure to be a financial vulnerability if, in a VAR framework that allows for nonlinearities, an impulse to the measure leads to an economic contraction. We evaluate alternative macrofinancial imbalances as vulnerabilities: nonfinancial sector credit, risk appetite of financial market participants, and the leverage and short-term funding of financial firms. We find that nonfinancial credit is a vulnerability: impulses to the credit-to-GDP gap when it is high leads to a recession. Risk appetite leads to an economic expansion in the near-term, but also higher credit and a recession ...
Finance and Economics Discussion Series , Paper 2016-055

Working Paper
Raiders of the Lost High-Frequency Forecasts: New Data and Evidence on the Efficiency of the Fed's Forecasting
Chang, Andrew C.; Levinson, Trace J. (2020-10-23)
We introduce a new dataset of real gross domestic product (GDP) growth and core personal consumption expenditures (PCE) inflation forecasts produced by the staff of the Board of Governors of the Federal Reserve System. In contrast to the eight Greenbook forecasts a year the staff produces for Federal Open Market Committee (FOMC) meetings, our dataset has roughly weekly forecasts. We use these new data to study whether the staff forecasts efficiently and whether efficiency, or lack thereof, is time-varying. Prespecified regressions of forecast errors on forecast revisions show that the staff's ...
Finance and Economics Discussion Series , Paper 2020-090

Working Paper
Fedwire Funds Service: Payments, Balances, and Available Liquidity
Badev, Anton; Clark, Lauren; Ebanks, Daniel; Marquardt, Jeffrey C.; Mills, David C. (2021-11-05)
We analyze the universe of payments settled through the Fedwire Funds Service--the primary U.S. real-time gross settlement service operated by the Federal Reserve--for the period January 2004 to December 2020. We report on trends in payments volume, payments value, balances, and overdrafts, in addition to documenting changes in the behavior of financial institutions transacting via the Fedwire Funds Service.
Finance and Economics Discussion Series , Paper 2021-070

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