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Working Paper
Interest on excess reserves as a monetary policy instrument: the experience of foreign central banks
This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tightening that included increasing these policy rates been achieved without reliance on reductions in reserves or other deposits held at the central bank? The foreign experience suggests that policy rate floors can be effective lower bounds for market rates, ...
Discussion Paper
How Correlated is LIBOR with Bank Funding Costs?
In a recent article in the BIS Quarterly Review, authors Schrimpf and Sushko (2019) provide an overview of the LIBOR transition to risk-free rates led by the FSB Official Sector Steering Group (OSSG). They also argue that rates like LIBOR may be desirable because banks “require a lending benchmark that behaves not too differently from the rates at which they raise funding.”
Working Paper
U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies
We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those of sovereign bonds, responded strongly to unconventional monetary policy announcements, these responses were not outsized with respect to a model that takes into account each country's time-varying vulnerability to U.S. interest rates affected by monetary policy shocks.
Working Paper
New Keynesian, open-economy models and their implications for monetary policy
The considerable amount of research in recent years on New Keynesian, open-economy models -- models with nominal price rigidities and intertemporally maximizing agents -- has yielded fresh insights for what Alan Blinder has called the "dark art" of making monetary policy. The literature has made its greatest contributions in understanding the transmission of shocks across countries, exchange rate pass-through and the effects of different pricing rules, and how these impact optimal monetary policy rules and international policy coordination. While the literature has by no means solved the ...
Working Paper
Options, sunspots, and the creation of uncertainty
We present a model in which the addition of an option market leads to sunspot equilibria in an economy which has no sunspot equilibrium before the market is introduced. This phenomenon occurs because the payoff of an option contract is contingent upon market prices, and while prices are taken as exogenous by individuals within the economy they are endogenous to the economy as a whole. Our results provide robust counterexamples to the two most prevalent views of options markets in finance. Following Ross [1976], it is often assumed that the addition of option contracts to an incomplete markets ...
Discussion Paper
What Happens on Quarter-Ends in the Repo Market
Over the course of the past two years, repo rates have begun to rise modestly around quarter-ends and, to a lesser extent, on some month-ends. As seen in Figure 1, after some time of the Secured Overnight Financing Rate (SOFR) remaining below or near the Overnight Reverse Repurchase (ON RRP) rate and with no or very little movement around quarter-ends, SOFR rose 7 basis points above the ON RRP rate at the end of March 2023, when banks' demand for liquid assets increased following the collapse of Silicon Valley Bank, and has temporarily increased over each quarter-end since then.