A “Risk-Management”
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
Statement / by Donald Kohn ... Before the Subcommittee On
Testimony Donald L. Kohn, Vice Chairman Federal Reserve independence Before the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, U.S. House of Representatives, Washington, D.C. July 9, 2009 Chairman Watt, Ranking Member Paul, and other members of the Subcommittee, I appreciate the opportunity to discuss with you the important public policy reasons why the Congress has long given the Federal Reserve a substantial degree of independence to conduct monetary policy while ensuring that we remain accountable to the Congress and to the American people. In addition, I will explain why an extension of the Federal Reserve’s supervisory and regulatory responsibilities as part of a broader initiative to address systemic risks would be compatible with the pursuit of our statutory monetary policy objectives. I also will discuss the significant steps the Federal Reserve has taken recently to improve our transparency and maintain accountability. Independence and Accountability A well-designed framework for monetary policy includes a careful balance between independence and accountability. A balance of this type conforms to our general inclination as a nation to have clearly drawn lines of authority, limited powers, and appropriate checks and balances within our government; such a balance also is conducive to sound monetary policy. The Federal Reserve derives much of the authority under which it operates from the Federal Reserve Act. The act specifies and limits the Federal Reserve’s powers. In 1977, the Congress amended the act by establishing maximum employment and price stability as our monetary policy objectives; the Federal Reserve has no authority to establish different objectives. -
No 523 the Evolution of Inflation Expectations in Canada and the US by James Yetman
BIS Working Papers No 523 The evolution of inflation expectations in Canada and the US by James Yetman Monetary and Economic Department October 2015 JEL classification: E31, E58 Keywords: Inflation expectations, decay function, inflation targeting BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements <2015>. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) The evolution of inflation expectations in Canada and the US James Yetman1 Abstract We model inflation forecasts as monotonically diverging from an estimated long-run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster-level data for Canada and the US, we identify three key differences between the two countries. First, the average estimated anchor of US inflation forecasts has tended to decline gradually over time in rolling samples, from 3.4% for 1989-1998 to 2.2% for 2004-2013. By contrast, it has remained close to 2% since the mid-1990 for Canadian forecasts. Second, the variance of estimates of the long-run anchor is considerably lower for the panel of Canadian forecasters than US ones following Canada’s adoption of inflation targets. -
Evaluating Central Banks' Tool
Evaluating Central Banks' Tool Kit: Past, Present, and Future∗ Eric Sims Jing Cynthia Wu Notre Dame and NBER Notre Dame and NBER First draft: February 28, 2019 Current draft: May 21, 2019 Abstract We develop a structural DSGE model to systematically study the principal tools of unconventional monetary policy { quantitative easing (QE), forward guidance, and negative interest rate policy (NIRP) { as well as the interactions between them. To generate the same output response, the requisite NIRP and forward guidance inter- ventions are twice as large as a conventional policy shock, which seems implausible in practice. In contrast, QE via an endogenous feedback rule can alleviate the constraints on conventional policy posed by the zero lower bound. Quantitatively, QE1-QE3 can account for two thirds of the observed decline in the \shadow" Federal Funds rate. In spite of its usefulness, QE does not come without cost. A large balance sheet has consequences for different normalization plans, the efficacy of NIRP, and the effective lower bound on the policy rate. Keywords: zero lower bound, unconventional monetary policy, quantitative easing, negative interest rate policy, forward guidance, quantitative tightening, DSGE, Great Recession, effective lower bound ∗We are grateful to Todd Clark, Drew Creal, and Rob Lester, as well as seminar participants at the Federal Reserve Banks of Dallas and Cleveland and the University of Wisconsin-Madison, for helpful comments. Correspondence: [email protected], [email protected]. 1 Introduction In response to the Financial Crisis and ensuing Great Recession of 2007-2009, the Fed and other central banks pushed policy rates to zero (or, in some cases, slightly below zero). -
The Federal Reserve's Response to the 1987 Market Crash
PRELIMINARY YPFS DISCUSSION DRAFT | MARCH 2020 The Federal Reserve’s Response to the 1987 Market Crash Kaleb B Nygaard1 March 20, 2020 Abstract The S&P500 lost 10% the week ending Friday, October 16, 1987 and lost an additional 20% the following Monday, October 19, 1987. The date would be remembered as Black Monday. The Federal Reserve responded to the crash in four distinct ways: (1) issuing a public statement promising to provide liquidity as needed, “to support the economic and financial system,” (2) providing support to the Treasury Securities market by injecting in-high- demand maturities into the market via reverse repurchase agreements, (3) allowing the Federal Funds Rate to fall from 7.5% to 7.0%, and (4) intervening directly to allow the rescue of the largest options clearing firm in Chicago. Keywords: Federal Reserve, stock market crash, 1987, Black Monday, market liquidity 1 Research Associate, New Bagehot Project. Yale Program on Financial Stability. [email protected]. PRELIMINARY YPFS DISCUSSION DRAFT | MARCH 2020 The Federal Reserve’s Response to the 1987 Market Crash At a Glance Summary of Key Terms The S&P500 lost 10% the week ending Friday, Purpose: The measure had the “aim of ensuring October 16, 1987 and lost an additional 20% the stability in financial markets as well as facilitating following Monday, October 19, 1987. The date would corporate financing by conducting appropriate be remembered as Black Monday. money market operations.” Introduction Date October 19, 1987 The Federal Reserve responded to the crash in four Operational Date Tuesday, October 20, 1987 distinct ways: (1) issuing a public statement promising to provide liquidity as needed, “to support the economic and financial system,” (2) providing support to the Treasury Securities market by injecting in-high-demand maturities into the market via reverse repurchase agreements, (3) allowing the Federal Funds Rate to fall from 7.5% to 7.0%, and (4) intervening directly to allow the rescue of the largest options clearing firm in Chicago. -
Appointment of Dr Donald Kohn to the Interim Financial Policy Committee
House of Commons Treasury Committee Appointment of Dr Donald Kohn to the interim Financial Policy Committee Thirteenth Report of Session 2010–12 Volume II Oral and written evidence Ordered by the House of Commons to be printed 17 May 2011 HC 1052–II Published on 20 June 2011 by authority of the House of Commons London: The Stationery Office Limited £6.00 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue and Customs and associated public bodies. Current membership Mr Andrew Tyrie MP (Conservative, Chichester) (Chairman) John Cryer MP (Labour, Leyton and Wanstead) Michael Fallon MP (Conservative, Sevenoaks) Mark Garnier MP (Conservative, Wyre Forest) Stewart Hosie MP (Scottish National Party, Dundee East) Andrea Leadsom MP (Conservative, South Northamptonshire) Mr Andy Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr George Mudie MP (Labour, Leeds East) Jesse Norman MP (Conservative, Hereford and South Herefordshire) David Ruffley MP (Conservative, Bury St Edmunds) John Thurso MP (Liberal Democrat, Caithness, Sutherland, and Easter Ross) Mr Chuka Umunna MP (Labour, Streatham) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. Committee staff The current staff of the Committee are Chris Stanton (Clerk), David Slater (Second Clerk), Adam Wales, Jay Sheth, Peter Stam and Daniel Fairhead (Committee Specialists), Phil Jones (Senior Committee Assistant), Caroline McElwee (Committee Assistant), Steve Price (Committee Support Assistant) and Nick Davies (Media Officer). -
Ben Bernanke and the Zero Bound
NBER WORKING PAPER SERIES BEN BERNANKE AND THE ZERO BOUND Laurence M. Ball Working Paper 17836 http://www.nber.org/papers/w17836 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2012 I am grateful for suggestions from Patricia Bovers, Christopher Carroll, Jon Faust, Joseph Gagnon, Donald Kohn, Daniel Leigh, Prakash Loungani, Gregory Mankiw, David Romer, and Jonathan Wright. The opinions in this paper are solely my own. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2012 by Laurence M. Ball. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Ben Bernanke and the Zero Bound Laurence M. Ball NBER Working Paper No. 17836 February 2012 JEL No. E52,E58,E65 ABSTRACT From 2000 to 2003, when Ben Bernanke was a professor and then a Fed Governor, he wrote extensively about monetary policy at the zero bound on interest rates. He advocated aggressive stimulus policies, such as a money-financed tax cut and an inflation target of 3-4%. Yet, since U.S. interest rates hit zero in 2008, the Fed under Chairman Bernanke has taken more cautious actions. This paper asks when and why Bernanke changed his mind about zero-bound policy. -
Is There a Zero Lower Bound? Mariassunta Giannetti, Sarah Holton the Effects of Negative Policy Rates on Banks and Firms
Working Paper Series Carlo Altavilla, Lorenzo Burlon, Is there a zero lower bound? Mariassunta Giannetti, Sarah Holton The effects of negative policy rates on banks and firms Revised June 2020 No 2289 / June 2019 Disclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. Abstract Exploiting confidential data from the euro area, we show that sound banks pass on negative rates to their corporate depositors without experiencing a contraction in funding and that the degree of pass-through becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy provides stimulus to the economy through firms’ asset rebalancing. Firms with high cash- holdings linked to banks charging negative rates increase their investment and decrease their cash-holdings to avoid the costs associated with negative rates. Overall, our results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound. JEL: E52, E43, G21, D22, D25. Keywords: monetary policy, negative rates, lending channel, corporate channel ECB Working Paper Series No 2289 / June 2019 1 Non-technical summary A tenet of modern macroeconomics is that monetary policy cannot achieve much once interest rates have already reached their zero lower bound (ZLB). Interest rates cannot become negative because market participants would just hoard cash instead. Thus, when short-term interest rates approach zero, central banks cannot stimulate demand by lowering short-term interest rates and the economy enters in a liquidity trap. -
The Government Spending Multiplier at the Zero Lower Bound: International Evidence from Historical Data∗
The Government Spending Multiplier at the Zero Lower Bound: International Evidence from Historical Data∗ By Mathias Kleina and Roland Winklerb aCorresponding author at Sveriges Riksbank, Monetary Policy Department – Research, Brunkebergstorg 11 103 37 Stockholm, Sweden, email: [email protected] bUniversity of Antwerp, Department of Economics, Prinsstraat 13, 2000 Antwerp, Bel- gium, e-mail: [email protected] This version: December 27, 2019 Abstract Based on a large historical panel dataset, this paper provides robust evidence that the government spending multiplier is significantly higher when interest rates are at, or near, the zero lower bound. We estimate multipliers that are as high as 1.5 during ZLB episodes, but small and statistically indistinguishable from zero during normal times. Our results are robust to different definitions of zero lower bound episodes, alternative ways of identifying government spending shocks, controlling for the exchange rate regime and other potentially important state variables. In particular, we show that the difference in multipliers is not driven by multipliers being higher during periods of economic slack. Keywords: Government spending multiplier, zero lower bound, local projections. JEL classifications: E32, E62, E65. ∗We thank Christian Bredemeier, Olivier Coibion, Jeanne Commault, Ester Faia, Georgios Georgiadis, Christoph Görtz, Ethan Ilzetzki, Hiro Ito, Falko Juessen, Ludger Linnemann, Karel Mertens, Gert Peers- man, Malte Rieth, Rolf Scheufele, Sebastian Schmidt, and seminar participants at Deutsche Bundesbank, DIW Berlin, DNB, DG ECFIN, the 8th IWH/INFER Workshop, CEF 2018, EEA 2018, VfS 2018, T2M 2019, the 7th Ghent University Workshop on Empirical Macroeconomics, and Universities of Antwerp, Birmingham, Kiel, Louvain, Namur, and Wuppertal for helpful comments and suggestions. -
The Federal Reserve System: Overview Lesson
U.S. HISTORY LESSON 3.3 The Federal Reserve System: Overview Lesson reform human capital debt safety net trade-off GDP deficit priorities spending Medicare mandatory budget Social Security revenue health care governance discretionary baby boomers economic growth infrastructure Because of its thematic importance, this lesson is not framed as an inquiry-driven dilemma, but instead, as a collection of resources that can be used as part of an informational lesson directed by the teacher or made available to students for independent study. INTRODUCTION Do financial markets know best? Left alone by the federal government, would the markets benefit the nation’s economy and, through self-regulation, the American people as a whole, or would they benefit a narrower group of people? Do the markets care about how well the economy is serving the American people and, if they don’t, does the government have an important role to play in achieving outcomes that benefit all Americans? One way to look at U.S. history is that it reflects the efforts of a politically open society to manage concentrations of political and economic power in ways that advance the common good with a minimum of government intervention. The story of the Federal Reserve System (also known as the Federal Reserve Bank, the Federal Reserve, or the Fed) can be told in these terms because the very need for a central bank has always been identified with the needs of private bankers—a group that has represented a concentration of economic power. The debate about Hamilton’s First Bank of the United States illustrates this struggle, and this same struggle has continued throughout U.S. -
Crisis Responses of the Federal Reserve, European Central Bank and Bank of England
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Oganesyan, Gayane Working Paper The changed role of the lender of last resort: Crisis responses of the Federal Reserve, European Central Bank and Bank of England Working Paper, No. 19/2013 Provided in Cooperation with: Berlin Institute for International Political Economy (IPE) Suggested Citation: Oganesyan, Gayane (2013) : The changed role of the lender of last resort: Crisis responses of the Federal Reserve, European Central Bank and Bank of England, Working Paper, No. 19/2013, Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin This Version is available at: http://hdl.handle.net/10419/70787 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. -
Emergency Tools to Contain a Financial Crisis
672 REVIEW OF BANKING & FINANCIAL LAW VOL. 35 EMERGENCY TOOLS TO CONTAIN A FINANCIAL CRISIS JOHN L. WALKER* Abstract In the extreme heat of the latest financial crisis, the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) took necessary and sufficient actions to address the crisis and prevent the collapse of the financial system. This article analyzes these actions and concludes that the curtailment by the Dodd-Frank Wall Street Reform and Consumer Protection Act of the powers utilized by these governmental financial authorities to take these actions has left the financial system much more vulnerable than it was before the latest financial crisis. When capital and liquidity requirements prove not to be sufficient to prevent a financial crisis, the latest financial crisis has shown that there are two powers in the “toolboxes” of the governmental financial authorities that are necessary to contain a rapidly spreading “wildfire” that could cause financial system conflagration. First, the Federal Reserve, as the central bank, should have clear statutory authority, subject to appropriate conditions, to extend emergency credit in “unusual and exigent circumstances” to any legal entity or individual to provide liquidity in situations of severe financial distress that could likely result in widespread financial system instability. Second, in such circumstances the government should have clear statutory authority to guarantee the liabilities of financial institutions. In the latest financial crisis, the Federal Reserve provided such credit and the FDIC provided such guarantees. Emergency Credit. Two of the most important actions taken by the governmental financial authorities in 2008 that prevented the * John L. -
Over the Cliff: from the Subprime to the Global Financial Crisis
NBER WORKING PAPER SERIES OVER THE CLIFF: FROM THE SUBPRIME TO THE GLOBAL FINANCIAL CRISIS Frederic S. Mishkin Working Paper 16609 http://www.nber.org/papers/w16609 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2010 The views expressed here are my own and are not necessarily those of Columbia University or the National Bureau of Economic Research. I thank participants in a seminar at the Federal Reserve Bank of San Francisco and the editors of the Journal of Economic Perspectives for their helpful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. © 2010 by Frederic S. Mishkin. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Over The Cliff: From the Subprime to the Global Financial Crisis Frederic S. Mishkin NBER Working Paper No. 16609 December 2010 JEL No. E58,G01,G18 ABSTRACT This paper examines what transformed a significant, but relatively mild, financial disruption into a full-fledged financial crisis. It discusses why, although the Lehman Brothers bankruptcy was a key trigger for the global financial crisis, three other events were at least as important: the AIG collapse on September 16, 2008; the run on the Reserve Primary Fund on the same day; and the struggle to get the Troubled Asset Relief Plan (TARP) plan approved by Congress over the following couple of weeks. The paper then looks at the policy responses to the financial crisis to evaluate whether they helped avoid a worldwide depression.