Search Results
Working Paper
How Optimal Was U.S. Monetary Policy at the Zero Lower Bound?
The zero lower bound on nominal interest rates can generate substantial downward pressure on longer-term inflation expectations. We use data on interest rate options and inflation compensation to estimate how the probability that the zero lower bound will bind in the future has weighed on inflation expectations in the United States. Over the 2008–19 period, we estimate that the zero lower bound imparted only a small drag on longer-term inflation expectations of around 10 basis points. We argue that the Federal Reserve's forward guidance and large-scale asset purchases largely offset the ...
Discussion Paper
How Do the Fed's MBS Purchases Affect Credit Allocation?
It is sometimes said that the Federal Reserve should not engage in “credit allocation.” But what does credit allocation actually mean? And how do current Fed policies affect the allocation of credit? In this post, we describe two separate ideas often associated with credit allocation. The first idea is that the Fed should not take credit risk, which taxpayers would ultimately have to bear. The second idea is that the Fed’s actions should not influence the flow of credit to particular sectors. We consider whether the Fed’s holdings of agency mortgage-backed securities (MBS) could ...
Report
The Federal Reserve’s Market Functioning Purchases
In March 2020, massive customer selling of U.S. Treasury securities and agency mortgage-backed securities (MBS) triggered by the COVID-19 pandemic overwhelmed dealers’ capacity to intermediate trades, contributing to a marked deterioration of market functioning. The Federal Reserve promptly took numerous steps to address the market disruptions, including the initiation of market functioning purchases of Treasury securities and agency MBS. Purchases quickly expanded to over $100 billion per day as the Fed announced plans to buy securities “in the amounts needed” to support market ...
Working Paper
Gauging the Ability of the FOMC to Respond to Future Recessions
Current forecasts suggest that the federal funds rate in the future is likely to level out at a rather low level by historical standards. If so, then the FOMC will have less ability than in the past to cut short-term interest rates in response to a future recession, suggesting a risk that economic downturns could turn out to be more severe as a result. However, simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully ...
Working Paper
Open-Ended Treasury Purchases: From Market Functioning to Financial Easing
We exploit the Fed’s Treasury purchases conducted from March 2020 to March 2022 to assess whether asset purchases can be tailored to accomplish different objectives: restoring market functioning and providing stimulus. We find that, on average, flow effects are significant in the market-functioning (MF) period (March-September 2020), while stock effects are strong in the QE period (September 2020-March 2022). In the MF period, the elevated frequency and size of the purchase operations allowed flow effects to greatly improve relative price deviations, especially at the long-end of the yield ...
Working Paper
Cheap Talk and the Efficacy of the ECB’s Securities Market Programme: Did Bond Purchases Matter?
In 2010, in response to an ever-worsening fiscal crisis, the ECB began purchasing sovereign debt from troubled euro-area countries through its Securities Market Programme (SMP). This program was designed to improve market functioning and restore the monetary transmission mechanism within the euro area. This paper does not test those ideals. Rather, we test whether SMP purchases systematically lowered peripheral yields and spreads. We find limited evidence of purchase effects but large announcement effects. In addition, on days in which the ECB was believed to have made large purchases, yields ...
Speech
Panel remarks at Bank Indonesia–Federal Reserve Bank of New York Joint International Seminar, Bali Indonesia
Remarks at Bank Indonesia?Federal Reserve Bank of New York Joint International Seminar, Bali Indonesia.
Working Paper
The COVID-19 Crisis and the Federal Reserve's Policy Response
The COVID-19 pandemic and the mitigation efforts put in place to contain it delivered the most severe blow to the U.S. economy since the Great Depression. In this paper, we argue that the Federal Reserve acted decisively and with dispatch to deploy all the tools in its conventional kit and to design, develop, and launch within weeks a series of innovative facilities to support the flow of credit to households and businesses. These measures, taken together, provided crucial support to the economy in 2020 and are continuing to contribute to what is expected to be a robust economic recovery in ...
Speech
Implementing monetary policy with the balance sheet: keynote remarks for ECB Workshop: Money Markets, Monetary Policy Implementation, and Central Bank Balance Sheets, Frankfurt am Main, Germany
Keynote Remarks for ECB Workshop: Money Markets, Monetary Policy Implementation, and Central Bank Balance Sheets, Frankfurt am Main, Germany.