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An interest rate rule to uniquely implement the optimal equilibrium in a liquidity trap
Zabai, Anna; Duarte, Fernando M. (2015-10-01)
We propose a new interest rate rule that implements the optimal equilibrium and eliminates all indeterminacy in a canonical New Keynesian model in which the zero lower bound on nominal interest rates (ZLB) is binding. The rule commits to zero nominal interest rates for a length of time that increases in proportion to how much past inflation has deviated?either upward or downward?from its optimal level. Once outside the ZLB, interest rates follow a standard Taylor rule. Following the Taylor principle outside the ZLB is neither necessary nor sufficient to ensure uniqueness of equilibria. ...
Staff Reports , Paper 745

Working Paper
Forward Guidance and Its Effectiveness: A Macro Finance Shadow-Rate Framework
Koeda, Junko; Wei, Bin (2023-10-16)
Forward guidance provides monetary policy communication for an economy at the effective lower bound (ELB). In this paper, we consider both calendar- and outcome-based forward guidance about the timing of liftoff. We develop a novel macro-finance shadow rate term structure model by introducing unspanned macro factors and an outcome-based liftoff condition. We estimate the model using the maximum likelihood method with extended Kalman filter. Based on the estimation results, we show that outcome-based forward guidance is indeed effective and has significant monetary-easing effects on the real ...
FRB Atlanta Working Paper , Paper 2023-16

Journal Article
Ben Bernanke: Solving a Crisis, Changing the Fed
Daly, Mary C. (2025-01-13)
Ben Bernanke’s contributions to economic thinking have been vast, from his extensive study of the Great Depression to groundbreaking research on the interplay of finance and the macroeconomy and the usefulness of unconventional monetary policy tools. His research helped guide his tenure as Federal Reserve Chair and his role in putting the U.S. economy on a path to the longest expansion in its history. Through that role, he also built a better and more transparent Fed for the future. The following remarks are adapted from a presentation by the Federal Reserve Bank of San Francisco president, ...
FRBSF Economic Letter , Volume 2025 , Issue 02 , Pages 7

Working Paper
Monetary Policy and Economic Performance since the Financial Crisis
Martinez-Garcia, Enrique; Gagnon, Etienne; Caldara, Dario; Neely, Christopher J. (2020-08)
We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
Working Papers , Paper 2020-026

Newsletter
Teaching the Linkage Between Banks and the Fed: R.I.P. Money Multiplier
Ihrig, Jane E.; Weinbach, Gretchen C.; Wolla, Scott A. (2021-09-17)
The money multiplier has been a standard concept in introductory economics classes for decades, but changes in the way the Fed implements monetary policy has made the model obsolete. This issue provides information about the linkages between the Fed and the banking system and provides teaching suggestions.
Page One Economics Newsletter

Working Paper
Monetary Policy and Economic Performance since the Financial Crisis
Martinez-Garcia, Enrique; Gagnon, Etienne; Caldara, Dario; Neely, Christopher J. (2020-11-02)
We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
Working Papers , Paper 2020-026

Speech
Is the Fed ‘Behind the Curve’? Two Interpretations (How Monetary Policy Got Behind the Curve and How to Get Back)
Bullard, James B. (2022-05-06)
St. Louis Fed President Jim Bullard provided updated estimates of the degree to which the Federal Reserve is “behind the curve” on raising its policy rate in response to high inflation. He spoke at Stanford University’s Hoover Institution.Bullard highlighted two interpretations of “behind the curve,” incorporating more recent data since his April 7 and April 21 presentations on this topic.
Speech

Working Paper
Monetary Policy and Economic Performance Since the Financial Crisis
Gagnon, Etienne; Martinez-Garcia, Enrique; Caldara, Dario; Neely, Christopher J. (2020-08-28)
We review the macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
Globalization Institute Working Papers , Paper 399

Working Paper
Monetary Policy and Real Borrowing Costs at the Zero Lower Bound
López-Salido, J. David; Gilchrist, Simon; Zakrajšek, Egon (2014-01)
This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced ...
Finance and Economics Discussion Series , Paper 2014-03

Working Paper
Constrained Discretion and Central Bank Transparency
Bianchi, Francesco; Melosi, Leonardo (2016-10-16)
We develop and estimate a general equilibrium model to quantitatively assess the effects and welfare implications of central bank transparency. Monetary policy can deviate from active inflation stabilization and agents conduct Bayesian learning about the nature of these deviations. Under constrained discretion, only short deviations occur, agents? uncertainty about the macroeconomy remains contained, and welfare is high. However, if a deviation persists, uncertainty accelerates and welfare declines. Announcing the future policy course raises uncertainty in the short run by revealing that ...
Working Paper Series , Paper WP-2016-15

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