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Discussion Paper
Do You Know How Your Treasury Trades Are Cleared and Settled?
Copeland, Adam; Mithal, Radhika; Fleming, Michael J.; Keane, Frank M. (2018-09-12)
The Treasury Market Practices Group (TMPG) recently released a consultative white paper on clearing and settlement processes for secondary market trades of U.S. Treasury securities. The paper describes in detail the many ways Treasury trades are cleared and settled? information that may not be readily available to all market participants?and identifies potential risk and resiliency issues. The work is designed to facilitate discussion as to whether current practices have room for improvement. In this post, we summarize the current state of clearing and settlement for secondary market Treasury ...
Liberty Street Economics , Paper 20180912

Discussion Paper
Dealer Participation in the TSLF Options Program
Denison, Erin; Sarkar, Asani; Fleming, Michael J.; Hrung, Warren B. (2019-03-06)
Our previous post described the workings of the Term Securities Lending Facility Options Program (TOP), which offered dealers options for obtaining short-term loans over month- and quarter-end dates during the global financial crisis of 2007-08. In this follow-up post, we examine dealer participation in the TOP, including the extent to which dealers bid for options, at what fees, and whether they exercised their options. We also provide evidence on how uncertainty in dealers? funding positions was related to the demand for the liquidity options.
Liberty Street Economics , Paper 20190306a

Monograph
Treasury debt management under the rubric of regular and predictable issuance: 1983-2012
Garbade, Kenneth D. (2015)
This monograph is a program management history of regular and predictable issuance from 1983 to 2012. The present study examines how Treasury officials managed this relatively new financing mechanism over time and in light of changing funding requirements. It is a study in "normal" program management, examining incremental adaptations to changing circumstances.
Monograph

Report
Business cycle fluctuations and the distribution of consumption
De Giorgi, Giacomo; Gambetti, Luca (2015-03-01)
This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, ...
Staff Reports , Paper 716

Report
The advantage of flexible targeting rules
Ferrero, Andrea (2008-07-01)
This paper investigates the consequences of debt stabilization for inflation targeting. If the monetary authority perfectly stabilizes inflation while the fiscal authority holds constant the real value of debt at maturity, the equilibrium dynamics might be indeterminate. However, determinacy can be restored by committing to targeting rules for either monetary or fiscal policy that include a concern for stabilization of the output gap. In solving the indeterminacy problem, flexible inflation targeting appears to be more robust than flexible debt targeting to alternative parameter ...
Staff Reports , Paper 339

Report
Understanding HANK: insights from a PRANK
Acharya, Sushant; Dogra, Keshav (2018-02-01)
We show analytically that whether incomplete markets resolve New Keynesian ?paradoxes? depends primarily on the cyclicality of income risk, rather than marginal propensity to consume (MPC) heterogeneity. Incomplete markets reduce the effectiveness of forward guidance and multipliers in a liquidity trap only with procyclical risk. Countercyclical risk amplifies these ?puzzles.? Procyclical risk permits determinacy under a peg; countercyclical risk generates indeterminacy even under the Taylor principle. MPC heterogeneity leaves determinacy and paradoxes qualitatively unaffected, but can change ...
Staff Reports , Paper 835

Working Paper
Interest Rate Dynamics, Variable-Rate Loan Contracts, and the Business Cycle
Pintus, Patrick A.; Wen, Yi; Xing, Xiaochuan (2015-09-01)
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when business-cycle movements are driven, in a significant way, by animal spirit shocks to credit-financed investment demand. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate ...
Working Papers , Paper 2015-32

Working Paper
Monetary Policy and Liquid Government Debt
Andolfatto, David; Martin, Fernando M. (2018-01-16)
We examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority-a scenario increasingly relevant for many developed economies today. Central bank control over the long-run inflation rate depends on whether fiscal policy is Ricardian or Non-Ricardian. The optimal monetary policy follows a generalized Friedman rule that eliminates the liquidity premium on scarce treasury debt. We derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the Taylor principle. In addition, ...
Working Papers , Paper 2018-2

Working Paper
The Inverted Leading Indicator Property and Redistribution Effect of the Interest Rate
Pintus, Patrick A.; Wen, Yi; Xing, Xiaochuan (2016-11-30)
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates today forecast future booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when interest-rate movements are driven, in a significant way, by self-fulfilling shocks that redistribute income away from lenders and to borrowers during booms. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the ...
Working Papers , Paper 2016-27

Working Paper
Understanding Lowflation
Andolfatto, David; Spewak, Andrew (2018-09-01)
Central banks are viewed as having a demonstrated ability to lower long-run inflation. Since the financial crisis, however, the central banks in some jurisdictions seem almost powerless to accomplish the opposite. In this article, we offer an explanation for why this may be the case. Because central banks have limited instruments, long-run inflation is ultimately determined by fiscal policy. Central bank control of long-run inflation therefore ultimately hinges on its ability to gain fiscal compliance with its objectives. This ability is shown to be inherently easier for a central bank ...
Working Papers , Paper 2018-24

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