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Working Paper
Fiscal Dominance and US Monetary: 1940–1975
Humpage, Owen F. (2016-12-21)
This narrative investigates the frictions that existed between the Federal Reserve?s monetary policies and the US Treasury?s debt-management operations from the onset of the Second World War through the end of the Federal Reserve?s even-keel actions in mid-1975. The analysis suggests that three factors can help explain why the Federal Reserve compromised the attainment of its statutorily mandated monetary-policy objectives for debt-management reasons: 1) the existence of an existential threat, 2) the fear that to do otherwise would create instability in the banking sector, and 3) the ...
Working Papers (Old Series) , Paper 1632

Discussion Paper
Exploring the TIPS‑Treasury Valuation Puzzle
Roussellet, Guillaume (2024-07-01)
Since the late 1990s, the U.S. Treasury has issued debt in two main forms: nominal bonds, which provide fixed-cash scheduled payments, and Treasury Inflation Protected Securities—or TIPS—which provide the holder with inflation-protected payments that rise with U.S. inflation. At the heart of their relative valuation lie market participants’ expectations of future inflation, an object of interest for academics, policymakers, and investors alike. After briefly reviewing the theoretical and empirical links between TIPS and Treasury yields, this post, based on a recent research paper, ...
Liberty Street Economics , Paper 20240701

Report
Pandemic-Era Inflation Drivers and Global Spillovers
Silva, Alvaro; Kalemli-Özcan, Ṣebnem; Yildirim, Muhammed A.; di Giovanni, Julian (2023-11-01)
We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. ...
Staff Reports , Paper 1080

Report
The Countercyclical Benefits of Regulatory Costs
Mechanick, Alexander; Weber, Jacob P. (2024-07-01)
Legal academics, journalists, and senior executive branch officials alike have assumed that the cost of imposing new regulatory requirements is higher in severe recessions that drive the central bank’s policy rate to zero than in other times. This is not correct; the aggregate output costs of regulatory requirements decrease, not increase, in such recessions. This article is the first to analyze how this effect arises, drawing on both conventional macroeconomic models and empirical findings from the econometrics literature. Scholars and policymakers have likely missed the countercyclical ...
Staff Reports , Paper 1109

Working Paper
Optimal Public Debt with Life Cycle Motives
Sager, Erick; Peterman, William B. (2018-04-20)
Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the ...
Finance and Economics Discussion Series , Paper 2018-028

Working Paper
Fiscal deficits, debt, and monetary policy in a liquidity trap
Devereux, Michael B. (2010)
The macroeconomic response to the economic crisis has revived old debates about the usefulness of monetary and fiscal policy in fighting recessions. Without the ability to further lower interest rates, policy authorities in many countries have turned to expansionary fiscal policies. Recent literature argues that government spending may be very effective in such environments. But a critical element of the stimulus packages in all countries was the use of deficit financing and tax reductions. This paper explores the role of government debt and deficits in an economy constrained by the zero ...
Globalization Institute Working Papers , Paper 44

Journal Article
Demand-Supply Imbalance during the COVID-19 Pandemic: The Role of Fiscal Policy
de Soyres, Francois; Santacreu, Ana Maria; Young, Henry L. (2023-01-20)
To mitigate the health and economic fallout from the COVID-19 pandemic, governments worldwide engaged in massive fiscal support programs. We show that generous fiscal support is associated with an increase in the demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. This imbalance between supply and demand across countries contributed to high inflation. Our findings suggest a sizable role for fiscal policy in affecting price stability, above and beyond what a monetary authority can do.
Review , Volume 105 , Issue 1 , Pages 21-50

Working Paper
Institutional quality, the cyclicality of monetary policy and macroeconomic volatility
Duncan, Roberto (2013-12-31)
In contrast to industrialized countries, emerging market economies are characterized by proor acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy - namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of IQL (law and order, government stability, investment profile, etc.), and (i) the cyclicality of monetary policy, and (ii) the volatilities of output and the nominal interest rate. In a DSGE model, foreign investors that choose a portfolio of direct ...
Globalization Institute Working Papers , Paper 163

Conference Paper
Selecting monetary targets in a changing financial environment
Kane, Edward J. (1982)
Proceedings - Economic Policy Symposium - Jackson Hole

Working Paper
Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank
Humpage, Owen F. (2014-03-27)
Independence is the hallmark of modern central banks, but independence is a mutable and fragile concept, because the governments to whom central banks are ultimately responsible can have objectives that take precedence over price stability. This paper traces the Federal Reserve?s emergence as a modern central bank beginning with its abandonment of monetary policy for debt-management operations during the Second World War and through the controversies that led to the Treasury-Federal Reserve accord in 1951. The accord, however, did not end the Federal Reserve?s search for independence. After ...
Working Papers (Old Series) , Paper 1402

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