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Report
Banking globalization, transmission, and monetary policy autonomy
Goldberg, Linda S. (2013-09-01)
International financial linkages, particularly through global bank flows, generate important questions about the consequences for economic and financial stability, including the ability of countries to conduct autonomous monetary policy. I address the monetary autonomy issue in the context of the international policy trilemma: Countries seek three typically desirable but jointly unattainable objectives?stable exchange rates, free international capital mobility, and monetary policy autonomy oriented toward, and effective at, achieving domestic goals. I argue that global banking entails some ...
Staff Reports , Paper 640

Working Paper
Fiscal Implications of the Federal Reserve's Balance Sheet Normalization
Grasing, Jamie; Rosa, Carlo; Frame, W. Scott; Malin, Benjamin A.; Cavallo, Michele; Del Negro, Marco (2018-08-21)
The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 ...
FRB Atlanta Working Paper , Paper 2018-7

Speech
Among Opposing Forces
Evans, Charles L. (2008-08-15)
Remarks by Charles L. Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago McLean County Chamber of Commerce, Bloomington, Illinois
Speech , Paper 19

Working Paper
Overnight RRP Operations as a Monetary Policy Tool: Some Design Considerations
Logan, Lorie; Martin, Antoine; Remache, Julie; McCabe, Patrick E.; Frost, Josh; Natalucci, Fabio M. (2015-02-19)
We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including ...
Finance and Economics Discussion Series , Paper 2015-10

Journal Article
A Monetarist View of the Fed’s Balance Sheet Normalization Period
Veracierto, Marcelo (2018)
The Federal Reserve currently holds over $4 trillion in fixed-income assets. However, since the fall of 2017 the Fed has been in a ?balance sheet normalization period,? during which the size of its balance sheet is gradually shrinking over time. In particular, the Federal Open Market Committee (FOMC) has been instructing the Federal Reserve trading desk to reduce its security holdings by reinvesting principal payments only to the extent that these payments exceed gradually raising caps. These caps on redemptions will be maintained until the Fed considers that its balance sheet has reached a ...
Economic Perspectives , Issue 2 , Pages 2-14

Discussion Paper
Central Bank Solvency and Inflation
Del Negro, Marco; Sims, Christopher A. (2015-04-01)
The monetary base in the United States, defined as currency plus bank reserves, grew from about $800 billion in 2008 to $2 trillion in 2012, and to roughly $4 trillion at the end of 2014 (see chart below). Some commentators have viewed this increase in the monetary base as a sure harbinger of inflation. For example, one economist wrote that this “unprecedented expansion of the money supply could make the ’70s look benign.” These predictions of inflation rest on the monetarist argument that nominal income is proportional to the money supply. The fact that the money supply has expanded ...
Liberty Street Economics , Paper 20150401

Discussion Paper
From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market
Ravazzolo, Fabiola; Zori, Alessandro; Afonso, Gara (2019-07-08)
How do changes in the interest rate that the Federal Reserve pays on reserves affect interest rates in money markets in which the Fed does not participate? And through which channels do changes in the so-called administered rates influence rates in onshore and offshore U.S. dollar money markets? This post offers an interactive map illustrating the web of relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market.
Liberty Street Economics , Paper 20190708

Report
Robust inference in models identified via heteroskedasticity
Lewis, Daniel J. (2018-12-01)
Identification via heteroskedasticity exploits differences in variances across regimes to identify parameters in simultaneous equations. I study weak identification in such models, which arises when variances change very little or the variances of multiple shocks change close to proportionally. I show that this causes standard inference to become unreliable, outline two tests to detect weak identification, and establish conditions for the validity of nonconservative methods for robust inference on an empirically relevant subset of the parameter vector. I apply these tools to monetary policy ...
Staff Reports , Paper 876

Working Paper
The limits of forward guidance
Ferroni, Filippo; Campbell, Jeffrey R.; Fisher, Jonas D. M.; Melosi, Leonardo (2019-03-20)
The viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon. We develop and estimate a model of imperfect central bank communications and use it to measure how effectively the Fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes. Standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so-called ?forward guidance ...
Working Paper Series , Paper WP-2019-3

Discussion Paper
The Recent Bond Market Selloff in Historical Perspective
Adrian, Tobias; Fleming, Michael J. (2013-08-05)
Long-term Treasury yields have risen sharply in recent months. The yield on the most recently issued ten-year note, for example, rose from 1.63 percent on May 2 to 2.74 percent on July 5, reaching its highest level since July 2011. Increasing yields result in realized or mark-to-market losses for fixed-income investors. In this post, we put these losses in historical perspective and investigate whether the yield changes are better explained by expectations of higher short-term rates in the future or by investors demanding greater compensation for holding long-term Treasuries.
Liberty Street Economics , Paper 20130805

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