Search Results
Working Paper
Monetary Policy, Uncertainty, and Communications
We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary ...
Speech
Remarks on the Economic Outlook and Monetary Policy
Musalem gave a speech, “Remarks on the Economic Outlook and Monetary Policy,” (PDF) at a CFA Society St. Louis event in St. Louis.
Working Paper
MoNK: Mortgages in a New-Keynesian Model
We propose a tractable framework for monetary policy analysis in which both short- and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New- Keynesian vs. cash flow effects in their transmission; ...
Working Paper
One Fed, Many Voices: Coordinated Communication vs. Transparent Debate
We analyze 481 speeches by FOMC members since 2007, excluding official press conferences. Combining high-frequency financial data with text analysis, we identify monetary policy surprises and measure each speech’s similarity to the Chair’s press conference preceding it. On average, monetary surprises around these speeches have no significant effect on inflation expectations or stock prices. Yet, speeches closely aligned with the Chair’s press conference amplify policy transmission, while less coordinated remarks dilute earlier effects on yields, inflation expectations, and equities. A ...
Working Paper
The Effect of the Federal Reserve on the Stock Market: Magnitudes, Channels and Shocks
We survey and extend work on the Federal Reserve’s effect on the stock market, focusing on three empirical findings: The effect of monetary policy surprises in a narrow window around announcements from the Federal Open Market Committee (FOMC), the pre-FOMC announcement drift, and the FOMC cycle in stock returns. We discuss the magnitude of the Fed’s impact (directional effects or effects on average stock returns), the types of shocks coming from the Fed (pure monetary policy shocks, reaction function news, or information about the Fed’s view of the economy), and the asset pricing ...