Odyssean Forward Guidance in Monetary Policy: a Primer
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Open Mouth Operations: a Swiss Case Study Michael J
Economic SYNOPSES short essays and reports on the economic issues of the day 2005 I Number 1 Open Mouth Operations: A Swiss Case Study Michael J. Dueker and Andreas Fischer early all central banks, other than those that peg Bank sought to implement the smallest initial rise in the an exchange rate, now explicitly communicate repo rate that would achieve their new target for the LIBOR. Npolicy changes through an announced target level The fact that the 3-month Swiss LIBOR rate immediately for a short-term interest rate. Notably, in 1999, the Swiss rose by the full 25 basis points, while the repo rate rose by National Bank replaced its monetary base target with an only about 15 basis points, suggests that the Swiss National operating target for the 3-month Swiss franc interbank Bank used open mouth operations to increase the rate lending (LIBOR) rate that the central bank adjusts as part spread above its usual level of 15 basis points. By the time of its strategy to maintain price stability. One question that of the second target change in September 2004, however, has arisen with interest rate targets is whether a central bank the Swiss National Bank did not achieve its objective of can cause the interest rate to move simply by expressing its raising the Swiss LIBOR rate by 25 basis points (to a level intention to establish a new target level—so-called open of 75 basis points) until it had raised the repo rate to a level mouth operations—or whether transactions of securities in of approximately 60 basis points—that is, not until the the central bank’s portfolio—open market operations—are typical rate spread of about 15 basis points was restored. -
Mankiw Coursebook
e Forward Guidance Forward Guidance Forward guidance is the practice of communicating the future path of monetary Perspectives from Central Bankers, Scholars policy instruments. Such guidance, it is argued, will help sustain the gradual recovery that now seems to be taking place while central banks unwind their massive and Market Participants balance sheets. This eBook brings together a collection of contributions from central Perspectives from Central Bankers, Scholars and Market Participants bank officials, researchers at universities and central banks, and financial market practitioners. The contributions aim to discuss what economic theory says about Edited by Wouter den Haan forward guidance and to clarify what central banks hope to achieve with it. With contributions from: Peter Praet, Spencer Dale and James Talbot, John C. Williams, Sayuri Shirai, David Miles, Tilman Bletzinger and Volker Wieland, Jeffrey R Campbell, Marco Del Negro, Marc Giannoni and Christina Patterson, Francesco Bianchi and Leonardo Melosi, Richard Barwell and Jagjit S. Chadha, Hans Gersbach and Volker Hahn, David Cobham, Charles Goodhart, Paul Sheard, Kazuo Ueda. CEPR 77 Bastwick Street, London EC1V 3PZ Tel: +44 (0)20 7183 8801 A VoxEU.org eBook Email: [email protected] www.cepr.org Forward Guidance Perspectives from Central Bankers, Scholars and Market Participants A VoxEU.org eBook Centre for Economic Policy Research (CEPR) Centre for Economic Policy Research 3rd Floor 77 Bastwick Street London, EC1V 3PZ UK Tel: +44 (0)20 7183 8801 Email: [email protected] Web: www.cepr.org © 2013 Centre for Economic Policy Research Forward Guidance Perspectives from Central Bankers, Scholars and Market Participants A VoxEU.org eBook Edited by Wouter den Haan a Centre for Economic Policy Research (CEPR) The Centre for Economic Policy Research is a network of over 800 Research Fellows and Affiliates, based primarily in European Universities. -
Explaining the Appearance of Open-Mouth Operations in the 1990S U.S
Explaining the Appearance of Open-Mouth Operations in the 1990s U.S. Christopher Hanes [email protected] Department of Economics SUNY-Binghamton P.O. Box 6000 Binghamton, NY 13902 July 2018 Abstract: In the 1990s it became apparent that changes in the FOMC’s target rate could be implemented through announcements alone - “open mouth operations” - without adjustments to reserve supply or the discount rate. This cannot be explained by standard models of the Fed’s system of policy implementation at the time. It differed from experience in the 1970s, the earlier era of interest-rate targeting, though the structure of implementation appeared essentially similar. I explain the appearance of open-mouth operations as a consequence of longstanding Fed discount-window lending practices, interacting with a decrease after the 1970s in the relative importance of discount borrowing by small banks. Data on discount borrowing by large versus small banks in the 1980s-1990s and the 1970s support my explanation. JEL codes E43, E51, E52, G21. Thanks to James Clouse, Selva Demiralp, Cheryl Edwards, William English, Marvin Goodfried, Kenneth Kuttner and William Whitesell. - 1 - In the 1990s Federal Reserve staff found that market overnight rates changed when the Federal Open Market Committee (FOMC) signalled it had changed its target fed funds rate, even if the staff made no adjustment to the quantity of reserves supplied through open-market operations. Eventually the volume of bank deposits responded to interest rates through the usual “money demand” channels, and the Fed had to accommodate resulting changes in the quantity of reserves needed to satisfy fractional reserve requirements or clear payments. -
Unemployment Crises
Unemployment Crises Nicolas Petrosky-Nadeau∗ Lu Zhang† Carnegie Mellon University The Ohio State University and NBER December 2013‡ Abstract A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the unemployment crisis in the Great Depression. The limited responses of wages from credible bargaining to labor market conditions, along with the congestion externality from matching frictions, cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unem- ployment crises in the model are quantitatively consistent with U.S. historical time series. The welfare gain from eliminating business cycle fluctuations is large. JEL Classification: E24, E32, J63, J64. Keywords: Search and matching frictions, unemployment crises, the Great Depression, the un- employment volatility puzzle, nonlinear impulse response functions ∗Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh PA 15213. Tel: (412) 268-4198 and e-mail: [email protected]. †Fisher College of Business, The Ohio State University, 760A Fisher Hall, 2100 Neil Avenue, Columbus OH 43210; and NBER. Tel: (614) 292-8644 and e-mail: zhanglu@fisher.osu.edu. ‡We are grateful to Hang Bai, Andrew Chen, Daniele Coen-Pirani, Steven Davis, Paul Evans, Wouter Den Haan, Bob Hall, Dale Mortensen, Paulina Restrepo-Echavarria, Etienne Wasmer, Randall Wright, and other seminar participants at Federal Reserve Bank of San Francisco, Northwestern University, the Ohio State University, the 19th International Conference on Computing in Economics and Finance hosted by the Society for Computational Eco- nomics, the 2013 North American Summer Meeting of the Econometric Society, the Southwest Search and Matching workshop at University of Colorado at Boulder, University of California at Berkeley, University of California at Santa Cruz, and University of Southern California for helpful comments. -
Divorcing Money from Monetary Policy
Todd Keister, Antoine Martin, and James McAndrews Divorcing Money from Monetary Policy • Many central banks operate in a way that 1.Introduction creates a tight link between money and monetary policy, as the supply of reserves onetary policy has traditionally been viewed as the must be set precisely in order to implement M process by which a central bank uses its influence over the target interest rate. the supply of money to promote its economic objectives. For example, Milton Friedman (1959, p. 24) defined the tools of • Because reserves play other key roles in the monetary policy to be those “powers that enable the [Federal economy, this link can generate tensions with Reserve] System to determine the total amount of money in central banks’ other objectives, particularly existence or to alter that amount.” In fact, the very term in periods of acute market stress. monetary policy suggests a central bank’s policy toward the supply of money or the level of some monetary aggregate. • An alternative approach to monetary policy In recent decades, however, central banks have moved away implementation can eliminate the tension from a direct focus on measures of the money supply. The between money and monetary policy primary focus of monetary policy has instead become the value by “divorcing” the quantity of reserves of a short-term interest rate. In the United States, for example, from the interest rate target. the Federal Reserve’s Federal Open Market Committee (FOMC) announces a rate that it wishes to prevail in the federal funds market, where overnight loans are made among • By paying interest on reserve balances at commercial banks. -
Expectations, Open Market Operations, and Changes in the Federal Funds
FEDERAL RESERVE BANK OF ST.LOUIS computation period. This has probably led to better Expectations, Open estimates of reserve requirements by the Trading Desk and the banks, but it has also eliminated the Market Operations, possibility of any contemporaneous response of required reserves to the interest rate. and Changes in the Another significant change made possible by computer technology is the ability of financial Federal Funds Rate institutions to efficiently “sweep” their consumers’ accounts from those with reserve requirements into John B. Taylor those without reserve requirements. These sweeps have allowed required reserve balances to decline he process through which Federal Reserve sharply from about $30 billion in 1990, to $15 bil- decisions about monetary policy are transmit- lion in 1996, to only about $5 to 6 billion today. As Tted to the federal funds market has changed a result, holding Fed balances to facilitate interbank significantly in recent years. In 1994 the Federal payments is of greater importance for many banks Open Market Committee (FOMC) began to issue than holding reserves for legal requirements. At the a public statement whenever it increased or de- same time, technology has improved the speed and creased its target for the federal funds rate. This accuracy with which banks can keep track of their target is now the focus of activities at the Trading payment inflows and outflows and thereby may Desk at the Federal Reserve Bank of New York. In have reduced the demand for Fed balances.3 particular, the FOMC directs the Trading Desk to In December 1999 the FOMC further expanded buy and sell securities so that conditions in the and clarified its public announcement policy. -
ALBERT MARCET Curriculum Vitae September 2010 Personal Data
ALBERT MARCET Curriculum Vitae September 2010 Personal Data Address Department of Economics London School of Economics Houghton Street London WC2A 2AE United Kingdom [email protected] Age: 50 Fields of Specialization Macroeconomics Time Series Financial Economics Economic Dynamic Theory Education -Ph. D. in Economics, University of Minnesota, 1987 -Llicenciat in Economics, Universitat Autonoma de Barcelona, 1982. Professional Experience Full time appointments: 2009- Professor of Economics, Department of Economics, London School of Economics 2004-2009 Research Professor, Institut d'Analisi Economica (CSIC). 1990-2003 Catedratic (Fulll professor), Universitat Pompeu Fabra 1 1986-90 Assistant Profesor, G.S.I.A., Carnegie Mellon University. 1984-86 Research Assistant, Federal Reserve Bank of Minneapolis. 1982-84 Teaching Assistant, Department of Economics, University of Minnesota. Other appointments 2006-2009 Adjunct Professor, IDEA doctoral program, Universitat Autonoma de Barcelona. 2006 Visiting Researcher (Wim Duisemberg Fellowship) European Cen- tral Bank. 2004-2006 Adjunct Professor, Universitat Pompeu Fabra 2001 Visiting Scholar, European Central Bank (July and December). 1997-2008 Visiting Professor, London Business School (three weeks a year). 1995-2006 Associate Researcher, CREI. 1996-97 Visiting Professor, CEMFI (Madrid). 1994 Outside Consultant, Research Department, Federal Reserve Bank of Minneapolis. 1990-92 Associate Profesor, G.S.I.A., Carnegie Mellon University, (on leave). 1989-90 Visiting Professor, Universitat Autonoma de Barcelona. Honors and Awards Plenary Session, SWIM conference, Auckland, New Zealand, 2009 Plenary Session CEF conference, Sydney, 2009 2 Plenary Session, Simposio AnalisisEconomico, Granada, 2007. President of the Spanish Economic Association, 2007. Wim Duisenberg Fellowship, European Central Bank, 2006. Plenary Session, European Symposium of Economic of Economic The- ory, ESSET, CEPR, 2002, Gerzensee. -
Petr Sedlácek
Petr Sedl´aˇcek November, 2020 Website: http://users.ox.ac.uk/∼econ0506 University of Oxford Email: [email protected] Department of Economics Manor Road Oxford OX1 3UQ, UK Current Position 2019 - Professor of Economics University of Oxford and Christ Church Other Appointments 2017 - Editorial Board Member Oxford Economic Papers 2015 - Research Affiliate Center for Economic Policy Research Previous Positions 2017 - 2019 Associate Professor University of Oxford 2016 - 2017 Visiting scholar Federal Reserve Bank of San Francisco and UC Berkeley 2014 - 2017 Researcher Hausdorff Center for Mathematics 2012 - 2017 Assistant (Junior) Professor Universit¨atBonn, Department of Economics 2011 - 2012 Postdoctoral researcher University of Amsterdam, Faculty of Economics and Business 2011 Visiting PhD student European Central Bank, Directorate General Research, Monetary Policy 2005 - 2006 Research assistant Czech Statistical Office, Department of Macroeconomic Analysis Education 2008 - 2011 Ph.D. in Economics advisor: Wouter J. den Haan Universiteit van Amsterdam, The Netherlands 2006 - 2008 M.Phil. in Econometrics and Macroeconomics (Cum Laude) Tinbergen Institute, Amsterdam, The Netherlands 2004 - 2005 M.A. in Economics (with Distinction) Joint European Studies Program Prague University of Economics, Staffordshire University, University of Antwerp 2002 - 2007 Ing. in Economic Policy and Macroeconomic Analysis (Msc equivalent) Prague University of Economics, Czech Republic Publications "The Nature of Firm Growth", 2020, with Benjamin Pugsley and Vincent Sterk, forthcoming at the American Economic Review. "Startups and Employment Following the COVID Pandemic: A Calculator", 2020, with Vincent Sterk, COVID Economics, 13. "The Economic Consequences of the Brexit Vote", 2017, with Benjamin Born, Gernot Mueller and Moritz Schularick, accepted at The Economic Journal. -
New Tools for Central Bankers?
A SYMPOSIUM OF VIEWS New Tools For Central Bankers? entral banks worldwide face criticism for the inability of their policies to restore the global economy to historic levels of economic activity. CCentral bank bond buying, it is often charged, has distorted financial markets. Negative real interest rates have weakened many banking sectors. At this summer’s Jackson Hole meeting, Federal Reserve Chair Janet Yellen proclaimed: “New policy tools, which helped the Federal Reserve respond to the financial crisis and Great Recession, are likely to remain useful in dealing with future downturns. Additional tools may be needed.” What new tools should the central bank community consider? Or has monetary policy been perceived too much as some kind of magical pill? Should fiscal and regulatory reforms come into play? THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY 220 I Street, N.E., Suite 200 Washington, D.C. 20002 More than forty noted experts share their views. Phone: 202-861-0791 Fax: 202-861-0790 www.international-economy.com [email protected] 6 THE INTERNATIONAL ECONOMY FALL 2016 The answer is not to transition … from the lead role in what essentially has been the equivalent of a “one-person show,” to playing a push central banks supporting role to politicians that finally step up to their economic governance responsibility and lift the con- even deeper into straints to a more comprehensive policy response. Absent such a pivot, the quest for new tools for cen- what has become an tral banks may be associated with a much more disturbing and durable development—that of seeing central banks increasingly “lose- shift from being part of the solution to becoming part of the problem. -
Monetary Policy Implementation: Misconceptions and Their Consequences by Piti Disyatat
BIS Working Papers No 269 Monetary policy implementation: Misconceptions and their consequences by Piti Disyatat Monetary and Economic Department December 2008 JEL codes: E40, E41, E51, E52, E58 Keywords: Monetary policy implementation, transmission mechanism, interest rates, money, liquidity effect, bank lending channel, sterilized intervention 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 views expressed in them are those of their authors and not necessarily the views of the BIS. Copies of publications are available from: Bank for International Settlements Press & Communications CH-4002 Basel, Switzerland E-mail: [email protected] Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2008. All rights reserved. Limited extracts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) Abstract Despite constituting the very heart of the monetary transmission mechanism, widespread misconceptions still exist regarding how monetary policy is implemented. This paper highlights the key misconceptions in this regard and shows how they have compromised the understanding of important aspects of the monetary transmission mechanism. In particular, the misplaced emphasis on open market operations as the means through which monetary policy is implemented can give rise to inappropriate characterizations of monetary policy, as well as to ill-defined discussions of liquidity effects, the bank lending channel, and sterilized exchange rate intervention. JEL Classification: E40, E41, E51, E52, E58 Keywords: Monetary policy implementation, transmission mechanism, interest rates, money, liquidity effect, bank lending channel, sterilized intervention Monetary policy implementation: Misconceptions and their consequences iii Table of contents 1. -
Do Central Banks Control the Price Level?”
Some Thoughts on \Do Central Banks Control the Price Level?" Karl Whelan Presentation at FMM Conference School of Economics, University College Dublin October 28, 2020 Karl Whelan (UCD) Do Central Banks Control the Price Level? October 28, 2020 1 / 19 Do Central Banks Control the Price Level? An interesting question. For most of the past 40 years, the answer from most people would be \Yes ... of course". And there are loads of examples of situations where macroeconomic policy has produced (and ended) high inflation. But in recent years, central banks have failed to reach their inflation targets despite new \unconventional" monetary policies. Have central banks got the ammunition to get inflation back to their desired levels? My (two handed ...) answer: 1 Yes but current conventions (and current conditions) constrain them from taking the necessary actions. 2 But this doesn't matter because we can use fiscal policy instead. Karl Whelan (UCD) Do Central Banks Control the Price Level? October 28, 2020 2 / 19 Roadmap for the Talk 1 Micro price theory versus macro price theory 2 Why central banks? I Monetarism I The Phillips curve I Central bank independence 3 The current situation I Low equilibrium real interest rates and unconventional policies. I Helicopter drops? I Fiscal policy options Karl Whelan (UCD) Do Central Banks Control the Price Level? October 28, 2020 3 / 19 Micro Pricing Evidence versus Macro Confusion The price level is just an aggregation of loads of individual prices. Empirical microeconomics is an extremely successful discipline and is very good at explaining prices. Study after study confirms that prices are a function of 1 Demand 2 Supply 3 Market structure Changing market structures may play some role in determining the aggregate price level but for the economy of the whole, it is reasonable to asset that the dominant factor driving prices is the demand for goods and services and the capacity to supply them. -
Nber Working Paper Series Monetary Policy in the Information Economy
NBER WORKING PAPER SERIES MONETARY POLICY IN THE INFORMATION ECONOMY Michael Woodford Working Paper 8674 http://www.nber.org/papers/w8674 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2001 Prepared for the “Symposium on Economic Policy for the Information Economy,” Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30-September 1, 2001. I am especially grateful to Andy Brookes (RBNZ), Chuck Freedman (Bank of Canada), and Chris Ryan (RBA) for their unstinting efforts to educate me about the implementation of monetary policy at their respective central banks. Of course, none of them should be held responsible for the interpretations offered here. I would also like to thank David Archer, Alan Blinder, Kevin Clinton, Ben Friedman, David Gruen, Bob Hall, Spence Hilton, Mervyn King, Ken Kuttner, Larry Meyer, Hermann Remsperger, Lars Svensson, Bruce White and Julian Wright for helpful discussions, Gauti Eggertsson and Hong Li for research assistance, and the National Science Foundation for research support through a grant to the National Bureau of Economic Research. The views expressed herein are those of the author and not necessarily those of the National Bureau of Economic Research. © 2001 by Michael Woodford. 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. Monetary Policy in the Information Economy Michael Woodford NBER Working Paper No. 8674 December 2001 JEL No. E58 ABSTRACT This paper considers two challenges that improvements in private-sector information-processing capabilities may pose for the effectiveness of monetary policy.