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Working Paper
Learning Monetary Policy Strategies at the Effective Lower Bound with Sudden Surprises
Central banks around the world have revised their operating frameworks in an attempt to counter the challenges presented by the effective lower bound (ELB) on policy rates. We examine how private sector agents might learn such a new regime and the effect of future shocks on that process. In our model agents use Bayesian updating to learn the parameters of an asymmetric average inflation targeting rule that is adopted while at the ELB. Little can be discovered until the economy improves enough that rates would be near liftoff under the old policy regime; learning then proceeds until either the ...
Speech
Money markets and monetary policy normalization
Remarks at the Money Marketeers of New York University, New York City.
Working Paper
The final countdown: the effect of monetary policy during \"Wait-for-It\" and reversal periods
After a long period of loose monetary policy triggered by the Great Recession, some central banks are signaling that they will raise their policy rates soon. Previous research, for example, Bernanke and Kuttner (2005) and Ozdagli (2014), has shown that asset prices react more strongly to monetary policy target surprises on the dates of such a policy reversal announcement. However, we know very little about the channels that generate these effects and whether the cross-sectional differences among firms and sectors play a significant role in transmitting a reversal decision to the economy, a ...
Working Paper
Monetary Policy 101: A Primer on the Fed's Changing Approach to Policy Implementation
The Federal Reserve conducts monetary policy in order to achieve its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates as prescribed by the Congress and laid out in the Federal Reserve Act. For many years prior to the financial crisis, the FOMC set a target for the federal funds rate and achieved that target through purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large scale ...
Working Paper
Forward Guidance and Its Effectiveness: A Macro Finance Shadow-Rate Framework
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 ...