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Working Paper
The Federal Reserve's operating procedure, nonborrowed reserves, borrowed reserves and the liquidity effect
Recently, there has been considerable interest in identifying the exogenous policy actions of the Fed and a number of identification methods have been proposed. This paper deals with one of these, namely, using nonborrowed reserves in a recursive structural vector autoregression(VAR). A number of researchers [Christiano, Eichenbaum and Evans (1994ab, 1996, 1997), Evans and Marshall(1997), Strongin(1995), Pagan and Robertson(1995) and Brunner(1994)] find evidence of a statistically significant liquidity effect using nonborrowed reserves in a VAR. The success in finding the liquidity effect ...
Journal Article
How good are the government’s deficit and debt projections and should we care?
Each year, the Congressional Budget Office (CBO) publishes its Budget and Economic Outlook. The CBO?s deficit projections for the current fiscal year (FY) and the next 10 FYs are widely followed because they provide an assessment of the medium-term budget outlook based on current law and a presumed path for the economy over the next decade. Admittedly, this task is more difficult because of the required assumption that the laws governing future outlays and revenues do not change. Nevertheless, given its nonpartisan nature and the CBO?s well-respected staff of professional economists and ...
Journal Article
Predictability and effectiveness of monetary policy
Working Paper
The Federal Reserve’s response to the financial crisis: what it did and what it should have done
This paper analyzes the Federal Reserve?s major policy actions in response to the financial crisis. The analysis is divided into the pre-Lehman and post-Lehman monetary policies. Specifically, I describe the pre- and post-Lehman monetary policy actions that I believe were appropriate and those that were not. I then describe the monetary policy actions the Fed should have taken and why those actions would have fostered better financial market and economic outcomes. Had these actions been taken, the Fed?s balance sheet would have returned to normal and the FOMC?s target for the federal funds ...
Journal Article
Inflation objective and policy credibility: a potential problem for the FOMC
In order to maintain its credibility, however, the FOMC will have to take actions consistent with achieving its stated inflation objective.
Journal Article
The exceptional 1990s
Working Paper
The effectiveness of unconventional monetary policy: the term auction facility
This paper investigates the effectiveness of one of the Fed?s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between LIBOR rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates. This paper suggests that rather than reducing the liquidity premium in LIBOR rates, the announcement of the TAF increased the risk premium in financial and other bond rates because market participants interpreted the announcement by the Fed and other central banks as a sign that the financial crisis was ...