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Working Paper
Tempting FAIT: Flexible Average Inflation Targeting and the Post-COVID U.S. Inflation Surge
Martínez García, Enrique; Duncan, Roberto; Miller, Luke (2026-06)
In August 2020, the Federal Reserve adopted Flexible Average Inflation Targeting (FAIT), permitting inflation to temporarily exceed the 2% target. Using synthetic control methods, we estimate that FAIT raised headline CPI inflation by 1 percentage point and core CPI by 0.5 percentage points, relative to a no-FAIT-adoption counterfactual, with short-lived effects concentrated during the 2021 inflation surge. Short-term inflation expectations increased by 0.8 percentage points, while long-term expectations remained well anchored. Real economic effects were statistically insignificant. The ...
Working Papers , Paper 2511

Working Paper
Monetary Policy and the Great COVID-19 Price Level Shock
Andolfatto, David; Martin, Fernando M. (2025-07-28)
We employ a small-scale dynamic general equilibrium model to analyze the surge in inflation following the COVID-19 pandemic. A calibrated version of the model is used to assess U.S. monetary and fiscal policy over the 2020–2024 period and to estimate the economic and welfare consequences of alternative policy scenarios. The analysis suggests that the large fiscal transfers of 2020–2021 were broadly welfare-improving, albeit larger than necessary. Given the fiscal stance in place, optimal monetary policy would not have generated a materially different price level dynamic. While monetary ...
Working Papers , Paper 2025-004

Journal Article
Risk Management in Monetary Policymaking: The 1994-95 FOMC Tightening Episode
Kliesen, Kevin L. (2025-04-24)
The 1994-95 tightening episode was one of the most notable in the FOMC’s history because the FOMC raised the policy rate by 300 basis points in a year, despite headline and core CPI inflation trending lower prior to the beginning of tighter policy in February 1994. Although Chair Alan Greenspan publicly signaled the FOMC’s desire to normalize its policy rate prior to February 1994, the Federal Reserve’s actions nonetheless caught the Treasury market by surprise, triggering a sharp decline in long-term bond prices. Chair Greenspan and the FOMC were regularly surprised that inflation was ...
Review , Volume 107 , Issue 6 , Pages 1-16

Report
The production impact of "cash-for-clunkers": implications for stabilization policy
Kahn, James A.; Copeland, Adam (2011-07-01)
Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the ?cash-for-clunkers? program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such ...
Staff Reports , Paper 503

Working Paper
The Impact of Bretton Woods International Capital Controls on the Global Economy and the Value of Geopolitical Stability: A General Equilibrium Analysis
Restrepo-Echavarria, Paulina; Wright, Mark L. J.; Ohanian, Lee E.; Van Patten, Diana (2025-04-11)
This paper quantifies the positive and normative effects of Bretton Woods capital controls on global economic activity. It applies a three-region DSGE model of the U.S., Western Europe, and the Rest of the World (ROW) that measures capital controls using observed regional consumption growth differences. We find sizable controls during Bretton Woods that prevented ROW capital from flowing to the U.S., and which reduced U.S. welfare and raised ROW welfare. By preventing capital flight in developing economies, we find that Bretton Woods controls promoted the U.S. foreign policy objective of ...
Working Papers , Paper 2020-042

Working Paper
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
Agarwal, Sumit; Ben-David, Itzhak; Seru, Amit; Piskorski, Tomasz; Chomsisengphet, Souphala; Amromin, Gene (2013-11-30)
The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an overall increase in the intensity of ...
Working Paper Series , Paper WP-2013-27

Working Paper
Preventive vs. Curative Medicine: A Macroeconomic Analysis of Health Care over the Life Cycle
Ozkan, Serdar (2023-09-19)
This paper studies differences in health care usage and health outcomes between low- and high-income individuals. Using data from the Medical Expenditure Panel Survey (MEPS) I find that early in life the rich spend significantly more on health care, whereas from midway through life until very old age the medical spending of the poor dramatically exceeds that of the rich. In addition, low-income individuals are less likely to incur any medical expenditures in a given year, yet, when they do incur medical expenditures, the amounts are more likely to be extreme. To account for these facts, I ...
Working Papers , Paper 2023-025

Working Paper
Fiscal Policy Design and Inflation: The COVID-19 Pandemic Experience
Hale, Galina; Leer, John; Nechio, Fernanda (2024-07-29)
Fiscal support measures in response to the COVID-19 pandemic varied in their targeted beneficiaries. Relying on variability across 10 large economies, we study differences in the inflationary effects of fiscal support measures targeting consumers or businesses. Because conventional measures of real activity were distorted, we control for the underlying state of real economy using households sentiment data. We find that fiscal support measures to consumers, but not firms, had inflationary effects that manifested 5 weeks following the announcement and peaked at 12 weeks. The magnitude of the ...
Working Paper Series , Paper 2023-02

Working Paper
BORROWER CREDIT ACCESS AND CREDIT PERFORMANCE AFTER LOAN MODIFICATIONS
Ding, Lei (2016-10-18)
While the preventive effect of loan modifications on mortgage default has been well-documented, evidence on the broad consequences of modifications has been fairly limited. Based on two unique loan-level data sets with borrower credit profiles, this study reports novel empirical evidence on how homeowners manage their credit before and after receiving modifications. The paper has several main findings. First, loan modifications improve borrowers? overall credit standing and access to credit. Modifications that provide principal reduction, rate reduction, or greater payment relief, as well as ...
Working Papers , Paper 16-26

Working Paper
The Federal Reserve’s Response to the 2023 Banking Turmoil: The Bank Term Funding Program
Arseneau, David M.; Klee, Elizabeth C.; Kotidis, Antonis; Siemer, Michael (2025-11-06)
The Bank Term Funding Program (BTFP) was an emergency liquidity facility set up by the Federal Reserve in March 2023 following the failure of Silicon Valley Bank which experienced a classic bank run driven by weak fundamentals. This paper provides an in-depth discussion of the design and implementation of the BTFP and presents some evidence on program outcomes. It also quantifies how the lending terms compare to those of the Discount Window—the Federal Reserve’s main standing liquidity facility. The BTFP successfully acted as a backstop source of funding for depository institutions with ...
Finance and Economics Discussion Series , Paper 2025-099

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