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Journal Article
An option for anticipating Fed action
Options contracts on federal funds futures, a new financial instrument introduced earlier this year, can be analyzed to gauge public expectations of future Fed actions. The real bonus is that they can detect differences of opinion when markets see more than two possible outcomes for an FOMC meeting as well as the likelihood associated with each.
Journal Article
Public pensions under stress
The financial crisis has made it all too clear that regulators failed to see into the dark corners of the financial system. With that in mind, the Federal Reserve Banks of Cleveland and Atlanta have formed a Financial Monitoring Team to study pension funds and municipal finance with an eye toward implications for the wider economy and financial system. What concerns should we have? In this article and other articles from this spring issue of Forefront, we explain where risks could be building and how reforms might help forestall their impact on the broader economy and financial system.
Journal Article
Accelerating money growth: is M2 telling us something?
A look at the recent acceleration in M2, examining evidence that its velocity has stabilized around a new trend, analyzing the usefulness of money in monetary policy deliberations, and highlighting some of the pitfalls of ignoring money growth.
Journal Article
Where is all the U.S. currency hiding?
An examination of the U.S. dollar's growing popularity abroad and a discussion of how the rising currency demand could affect U.S. economic policy.
Journal Article
The recent ascent of stock prices: can it be explained by earnings growth or other fundamentals?
An analysis of the current relationship between stock prices, dividends, earnings, and returns, aimed at examining the causes of the recent stock market surge. It reveals that the markets level cannot be explained by any single fundamental element of standard stock valuation models, but rather manifests optimism about future dividend growth (based on the present record growth in earnings) and a lower expected return (reflecting a diminished risk premium for holding equity).
Journal Article
The recent ascent in stock prices: how exuberant are you?
Journal Article
The demand for M2, opportunity cost, and financial change
An analysis of the recent weakness in M2 growth that attempts to measure the opportunity cost of the aggregate more accurately and that explores the potential effects of the thrift industry restructuring on the adjustment of money demand to its long-run equilibrium level.
Journal Article
Why is the dividend yield so low?
The dividend yield on stocks has dropped sharply over the last decade. Is its drop a consequence of irrational exuberance? This Commentary assesses alternative explanations for the diminished dividend yield.
Working Paper
Monetary policy, endogenous inattention, and the volatility trade-off
This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual trade-off between output and ...
Journal Article
Maintaining a low inflation environment
An examination of monetary policy actions before and after 1982, illustrating that prompt federal funds rate increases aimed at maintaining a low inflation environment are associated with subsequent robust economic growth, not with weak growth, as is commonly thought.