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Discussion Paper
Why Pay Interest on Required Reserve Balances?
Martin, Antoine; Wiggins, Heather; Lipscomb, Laura (2017-09-25)
The Federal Reserve has paid interest on reserves held by banks in their Fed accounts since 2008. Why should it do so? Here, we describe some benefits of paying interest on required reserve balances. Since forcing banks to hold unremunerated reserves would be akin to levying a tax on them, paying interest on these balances is a way to eliminate or greatly reduce that tax and its negative effects.
Liberty Street Economics , Paper 20170925

Discussion Paper
Why Pay Interest on Excess Reserve Balances?
Wiggins, Heather; Lipscomb, Laura; Martin, Antoine (2017-09-27)
In a previous post, we described some reasons why it is beneficial to pay interest on required reserve balances. Here we turn to arguments in favor of paying interest on excess reserve balances. Former Federal Reserve Chairman Ben Bernanke and former Vice Chairman Donald Kohn recently discussed many potential benefits of paying interest on excess reserve balances and some common misunderstandings, including that paying interest on reserves restricts bank lending and provides a subsidy to banks. In this post, we focus primarily on benefits related to the efficiency of the payment system and ...
Liberty Street Economics , Paper 20170927

Discussion Paper
Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization
Del Negro, Marco; Rosa, Carlo; Malin, Benjamin A.; Grasing, Jamie; Cavallo, Michele; Frame, W. Scott (2018-01-09)
In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet?from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that?effective October 2017?it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC?s Policy Normalization Principles and Plans.
Liberty Street Economics , Paper 20180109

Discussion Paper
Ten years later – Did QE work?
Zimmermann, Thomas; Luck, Stephan (2019-05-08)
By November 2008, the Global Financial Crisis, which originated in the residential housing market and the shadow banking system, had begun to turn into a major recession, spurring the Federal Open Market Committee (FOMC) to initiate what we now refer to as quantitative easing (QE). In this blog post, we draw upon the empirical findings of post-crisis academic research's including our own work's to shed light on the question: Did QE work?
Liberty Street Economics , Paper 20190508

Discussion Paper
From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market
Afonso, Gara; Ravazzolo, Fabiola; Zori, Alessandro (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

Discussion Paper
The Transmission of Monetary Policy and the Sophistication of Money Market Fund Investors
Cipriani, Marco; La Spada, Gabriele; Gortmaker, Jeff (2019-09-04)
In December 2015, the Federal Reserve tightened monetary policy for the first time in almost ten years and, over the following three years, it raised interest rates eight more times, increasing the target range for the federal funds rate from 0-25 basis points (bps) to 225-250 bps. To what extent are changes in the fed funds rate transmitted to cash investors, and are there differences in the pass-through between retail and institutional investors? In this post, we describe the impact of recent rate increases on the yield paid by money market funds (MMFs) to their investors and show that the ...
Liberty Street Economics , Paper 20190904

Discussion Paper
Real Inventory Slowdowns
Lucca, David O.; McQuillan, Casey; Crump, Richard K. (2019-11-18)
Inventory investment plays a central role in business cycle fluctuations. This post examines whether inventory investment amplifies or dampens economic fluctuations following a tightening in financial conditions. We find evidence supporting an amplification mechanism. This analysis suggests that inventory accumulation will be a drag on economic activity this year but provide a boost in 2020.
Liberty Street Economics , Paper 20191118

Discussion Paper
Japan’s Experience with Yield Curve Control
Higgins, Matthew; Klitgaard, Thomas (2020-06-22)
In September 2016, the Bank of Japan (BoJ) changed its policy framework to target the yield on ten-year government bonds at “around zero percent,” close to the prevailing rate at the time. The new framework was announced as a modification of the Bank's earlier policy of rapid monetary base expansion via large-scale asset purchases—a policy that market participants increasingly regarded as unsustainable. While the BoJ announced that the rapid pace of government bond purchases would not change, it turned out that the yield target approach allowed for a dramatic scaling back in purchases. ...
Liberty Street Economics , Paper 20200622

Speech
No Man Is an Island
Williams, John C. (2019-11-14)
Remarks at 2019 Asia Economic Policy Conference, Federal Reserve Bank of San Francisco, San Francisco, California.
Speech , Paper 337

Report
Learning the fiscal theory of the price level: some consequences of debt management policy
Eusepi, Stefano; Preston, Bruce (2011-09-01)
This paper examines how the scale and composition of public debt can affect economies that implement a combination of ?passive? monetary policy and ?active? fiscal policy. This policy configuration is argued to be of both historical and contemporary interest in the cases of the U.S. and Japanese economies. It is shown that higher average levels and moderate average maturities of debt can induce macroeconomic instability under a range of policies specified as simple rules. However, interest rate pegs in combination with active fiscal policies almost always ensure macroeconomic stability. This ...
Staff Reports , Paper 515

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