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Working Paper
News and Uncertainty about COVID-19: Survey Evidence and Short-Run Economic Impact
Kuester, Keith; Schoenle, Raphael; Dietrich, Alexander; Muller, Gernot J. (2021-12-22)
A tailor-made survey documents consumer perceptions of the U.S. economy’s response to a large shock: the advent of the COVID-19 pandemic. The survey ran at a daily frequency between March 2020 and July 2021. Consumer perceptions regarding output and inflation react rapidly. Uncertainty is pervasive. A business-cycle model calibrated to the consumer views provides an interpretation. The rise in household uncertainty amplifies the pandemic recession by a factor of three. Different perceptions about monetary policy can explain why consumers and professional forecasters agree on the ...
Working Papers , Paper 20-12R

Working Paper
Monetary Policy Uncertainty and Economic Fluctuations at the Zero Lower Bound
Doehr, Rachel; Martinez-Garcia, Enrique (2021-11-11)
We propose a TVP-VAR with stochastic volatility for the unemployment rate, core inflation and the federal funds rate augmented with survey-based interest rate expectations and uncertainty and a FAVAR with a wider set of observable variables and alternative monetary policy measures in order to explore U.S. monetary policy, accounting for the zero lower bound. We find that a rise in monetary policy uncertainty increases unemployment and lowers core inflation; the effects on unemployment in particular are robust (a gradual 0.4 percentage point increase), lasting more than two years after the ...
Globalization Institute Working Papers , Paper 412

Working Paper
Passive Quantitative Easing: Bond Supply Effects through a Halt to Debt Issuance
Christensen, Jens H. E.; Hetland, Simon Thinggaard (2023-08-15)
This article presents empirical evidence of a supply-induced transmission channel to longterm interest rates caused by a halt to government debt issuance. This is conceptually equivalent to a central bank operated asset purchase program, commonly known as quantitative easing (QE). However, as it involves neither asset purchases nor associated creation of central bank reserves, we refer to it as passive QE. For evidence, we analyze the response of Danish government bond risk premia to a temporary halt in government debt issuance announced by the Danish National Bank. The data suggest that ...
Working Paper Series , Paper 2023-24

Working Paper
The Natural Rate of Interest Through a Hall of Mirrors
Rungcharoenkitkul, Phurichai; Winkler, Fabian (2022-03-18)
Prevailing explanations of persistently low interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side ...
Finance and Economics Discussion Series , Paper 2022-010

Working Paper
The Term Structure and Inflation Uncertainty
D'Amico, Stefania; Orphanides, Athanasios; Breach , Tomas (2016-12-12)
This paper develops and estimates a Quadratic-Gaussian model of the U.S. term structure that can accommodate the rich dynamics of inflation risk premia over the 1983-2013 period by allowing for time-varying market prices of inflation risk and incorporating survey information on inflation uncertainty in the estimation. The model captures changes in premia over very diverse periods, from the inflation scare episodes of the 1980s, when perceived inflation uncertainty was high, to the more recent episodes of negative premia, when perceived inflation uncertainty has been considerably smaller. A ...
Working Paper Series , Paper WP-2016-22

Working Paper
The Fiscal Theory of the Price Level in a World of Low Interest Rates
Cui, Wei; Bassetto, Marco (2017-11-16)
A central equation for the fiscal theory of the price level (FTPL) is the government budget constraint (or "government valuation equation"), which equates the real value of government debt to the present value of fiscal surpluses. In the past decade, the governments of most developed economies have paid very low interest rates, and there are many other periods in the past in which this has been the case. In this paper, we revisit the implications of the FTPL in a world where the rate of return on government debt may be below the growth rate of the economy, considering different sources for ...
Working Paper Series , Paper WP-2017-25

Working Paper
Monetary Policy 101: A Primer on the Fed's Changing Approach to Policy Implementation
Ihrig, Jane E.; Meade, Ellen E.; Weinbach, Gretchen C. (2015-06-30)
The Federal Reserve conducts monetary policy in order to achieve its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates as prescribed by the Congress and laid out in the Federal Reserve Act. For many years prior to the financial crisis, the FOMC set a target for the federal funds rate and achieved that target through purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large scale ...
Finance and Economics Discussion Series , Paper 2015-47

Working Paper
Inferring the Shadow Rate from Real Activity
Garcia, Benjamin; Skaperdas, Arsenios (2017)
We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate.
Finance and Economics Discussion Series , Paper 2017-106

Working Paper
Scarcity of Safe Assets and Global Neutral Interest Rates
Ferreira, Thiago Revil T.; Shousha, Samer (2020-07-10)
We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our ...
International Finance Discussion Papers , Paper 1293

Discussion Paper
Assessing monetary accommodation: a simple empirical model of monetary policy and its implications for unemployment and inflation
Armen, Alan; Koenig, Evan F. (2015-12)
This note suggests that household wealth growth and a long-forward interest rate can be used to construct a simple and convenient reference standard for assessing the current stance of monetary policy. It shows that the difference between the federal funds rate and this reference interest rate is a powerful predictor of the unemployment rate and inflation, producing real-time forecasts that are competitive with consensus-based forecasts from surveys of forecasting professionals. Moreover, one can understand past FOMC policy actions as efforts to adjust the stance of policy, so measured, in ...
Staff Papers , Issue Dec

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