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Journal Article
Evaluating Monetary Policy with Inflation Bands and Horizons
Inflation targeting has become the dominant way countries approach setting monetary policy goals. However, central banks differ in how they conduct that policy and how they evaluate their success in meeting a stated inflation goal. A new assessment method combines a percentage range around a target, known as an inflation tolerance band, with central banks stating how long it will take for high or low inflation to return to that range, known as a time horizon. Comparing previously projected horizons with realized horizons can be used to evaluate policy success.
Journal Article
Price Stability Built to Last
The economy is healthy and price stability is within sight. But progress is not victory, and considerable uncertainty and risks remain. To finish the job will take fortitude and patience, along with the agility to respond as the economy evolves. The following is adapted from the keynote address by the president of the Federal Reserve Bank of San Francisco at the 40th Annual NABE Economic Policy Conference in Washington, DC, on February 16.
Journal Article
The political origins of Section 13(3) of the Federal Reserve Act
At the height of the financial crisis of 2007-09, the Federal Reserve conducted emergency lending under authority granted to it in the third paragraph of Section 13 of the Federal Reserve Act. This article explores the political and legislative origins of the section, focusing on why Congress chose to endow the central bank with such an authority. The author describes how in the initial passage of the act in 1913, Congress demonstrated its steadfast commitment to the ?real bills? doctrine in two interrelated ways: 1) by limiting what assets the Fed could purchase, discount, and use as ...
Journal Article
Is the Risk of the Lower Bound Reducing Inflation?
U.S. inflation has remained below the Fed’s 2% goal for over 10 years, averaging about 1.5%. One contributing factor may be the impact from a higher probability of future monetary policy being constrained by the effective lower bound on interest rates. Model simulations suggest that this higher risk of hitting the lower bound may lead to lower expectations for future inflation, which in turn reduces inflation compensation for investors. The higher risk may also change household and business spending and pricing behavior. Taken together, these effects contribute to weaker inflation.
Journal Article
Landing Softly Is Just the Beginning
The economy has significantly improved from just two years ago. Inflation has fallen substantially, and the labor market has returned to a more sustainable path. A soft landing is achievable, and the Fed is resolute to finish the job. But looking ahead, we should strive for a durable and sustained expansion that helps all Americans. The following is adapted from remarks presented by the president of the Federal Reserve Bank of San Francisco at the New York University Stern School of Business in New York City on October 15.
Journal Article
The New Stone Soup
Countries around the globe face slow growth, low real interest rates, and persistently low inflation. This makes economies less resilient and less able to offset everyday shocks with traditional tools. Policymakers must actively look for outside perspectives and be courageous enough to take action in times of uncertainty. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco delivered as part of the Iveagh House Lectures at the Irish Department of Foreign Affairs and Trade in Dublin on February 10.
Working Paper
Central Bank Digital Currency: Central Banking for All?
The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial interme-diaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. Dur-ing a panic, however, we show that the rigidity of the central bank’s contract ...
Discussion Paper
Which Dealers Borrowed from the Fed’s Lender-of-Last-Resort Facilities?
During the 2007-08 financial crisis, the Fed established lending facilities designed to improve market functioning by providing liquidity to nondepository financial institutions—the first lending targeted to this group since the 1930s. What was the financial condition of the dealers that borrowed from these facilities? Were they healthy institutions behaving opportunistically or were they genuinely distressed? In published research, we find that dealers in a weaker financial condition were more likely to participate than healthier ones and tended to borrow more. Our findings reinforce the ...