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Conference Paper
The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models
This paper demonstrates that long-term forward interest rates in the U.S. often react considerably to surprises in macroeconomic data releases and monetary policy announcements. This behavior is in contrast to the prediction of many macroeconomic models, in which the long-run properties of the economy are assumed to be time-invariant and perfectly known by all economic agents: Under those assumptions, the shocks we consider would have only transitory effects on short-term interest rates, and hence would not generate large responses in forward rates. Our empirical findings suggest that private ...
Speech
Reflections on the TALF and the Federal Reserve's role as liquidity provider
Remarks at the New York Association for Business Economics, New York City.
Working Paper
Treasury inflation-indexed debt: a review of the U.S. experience
This paper reviews the U.S. experience with inflation-indexed debt. To date, Treasury inflation-indexed securities have not been highly valued by investors, with the spread between the yields on nominal and inflation-indexed securities falling consistently below most measures of long-run inflation expectations. A number of factors might have contributed to the low relative valuation of TIIS, including the difficulty for investors of adjusting to a new asset class, the concentration of participation in the market, the lower liquidity of TIIS relative to nominal Treasury securities, and the ...
Working Paper
Does the Fed act gradually? a VAR analysis.
The tendency for changes in the federal funds rate to be implemented gradually has been considered evidence of an interest-rate smoothing objective for the Federal Reserve. This paper investigates whether gradual movements in the federal funds rate can be explained by the dynamic structure of the economy and the uncertainty that the Fed faces regarding this structure, without recourse to including an ad-hoc interest rate smoothing argument in the objective function of the Fed. The analysis calculates the optimal funds rate policy given the structural form of the economy estimated in a VAR. In ...
Working Paper
Market-based measures of monetary policy expectations
A number of recent papers have used short-maturity financial instruments to measure expectations of the future course of monetary policy, and have used high-frequency changes in these instruments around FOMC dates to measure monetary policy shocks. This paper evaluates the empirical success of a variety of market instruments in predicting the future path of monetary policy. We find that federal funds futures dominate other market-based measures of monetary policy expectations at horizons out several months. For longer horizons, the predictive power of many of the instruments considered is ...
Working Paper
Extracting the expected path of monetary policy from futures rates
Federal funds and eurodollar futures contracts are among the most useful instruments for deriving expectations of the future path of monetary policy. However, reading policy expectations from those instruments is complicated by the presence of risk premia. This paper demonstrates how to extract the expected policy path under the assumption that risk premia are constant over time, and under a simple model that allows risk premia to vary. In the latter case, the risk premia are identified under the assumption that policy expectations level out after a long enough horizon. The results provide ...
Working Paper
The impact of monetary policy on asset prices
Estimating the response of asset prices to changes in monetary policy is complicated by the endogeneity of policy decisions and the fact that both interest rates and asset prices react to numerous other variables. This paper develops a new estimator that is based on the heteroskedasticity that exists in high frequency data. We show that the response of asset prices to changes in monetary policy can be identified based on the increase in the variance of policy shocks that occurs on days of FOMC meetings and of the Chairman's semi-annual monetary policy testimony to Congress. The identification ...
Working Paper
The U.S. Treasury yield curve: 1961 to the present
The discount function, which determines the value of all future nominal payments, is the most basic building block of finance and is usually inferred from the Treasury yield curve. It is therefore surprising that researchers and practitioners do not have available to them a long history of high-frequency yield curve estimates. This paper fills that void by making public the Treasury yield curve estimates of the Federal Reserve Board at a daily frequency from 1961 to the present. We use a well-known and simple smoothing method that is shown to fit the data very well. The resulting estimates ...
Speech
Dollar asset markets: prospects after the crisis
Remarks at the ACI 2010 World Congress, Sydney, Australia.
Speech
The implementation of recent monetary policy actions
Remarks at the Annual Meeting with Primary Dealers, New York City.