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Working Paper
Quantifying "Quantitative Tightening" (QT): How Many Rate Hikes Is QT Equivalent To?
Wei, Bin (2022-07-15)
How many interest rate hikes is quantitative tightening (QT) equivalent to? In this paper, I examine this question based on the preferred-habitat model in Vayanos and Vila (2021). I define the equivalence between rate hikes and QT such that they both have the same impact on the 10-year yield. Based on the model calibrated to fit the nominal Treasury data between 1999 and 2022, I show that a passive roll-off of $2.2 trillion over three years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times. However, during a crisis period with risk aversion ...
FRB Atlanta Working Paper , Paper 2022-8

Speech
U.S. monetary policy and its global implications
Dudley, William (2014-11-13)
Remarks at the Central Bank of the United Arab Emirates, Abu Dhabi, United Arab Emirates.
Speech , Paper 151

Working Paper
The Federal Reserve’s Evolving Monetary Policy Implementation Framework: 1914-1923
Chabot, Benjamin (2017-01-18)
The Federal Reserve has relied upon a number of different monetary policy implementation frameworks throughout its history. This paper describes the original implementation framework that evolved between 1914 and 1923 in response to new policy objectives and changing market conditions.
Working Paper Series , Paper WP-2017-1

Working Paper
How to Starve the Beast: Fiscal Policy Rules
Martin, Fernando M. (2022-09-14)
Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of revenue, deficit and debt rules when governments are discretionary and prone to overspending. The optimal prescription is a revenue ceiling coupled with a balance budget requirement. For the U.S., the optimal revenue ceiling is about 15% of output, 3 percentage points below the postwar average. Most of the benefits can still be reaped with a milder constraint or escape clauses during adverse times. Imposing a ...
Working Papers , Paper 2019-026

Working Paper
The Effects of the Federal Reserve Chair’s Testimony on Interest Rates and Stock Prices
Gordon, Matthew V.; Lunsford, Kurt Graden (2023-11-13)
We study how congressional testimony about monetary policy by the Chair of the Board of Governors of the Federal Reserve System affects interest rates and stock prices. First, we study testimony associated with the Federal Reserve’s Monetary Policy Reports (MPRs) to Congress. Testimony for a particular MPR is usually given on two days, one day for each chamber of Congress. We separately study the first day and second day of MPR testimony. We also study testimonies not associated with MPRs but that are still related to monetary policy. We find that first-day MPR testimonies cause the largest ...
Working Papers , Paper 23-26

Working Paper
Negative Interest Rate Policy and the Influence of Macroeconomic News on Yields
Hara, Naoko; Fatum, Rasmus; Yamamoto, Yohei (2019-01-27)
We consider the influence of domestic and U.S. macroeconomic news surprises on daily bond yields over the January 1999 to January 2018 period for four advanced Negative Interest Rate Policy (NIRP) economies ? Germany, Japan, Sweden and Switzerland. Our results suggest that the influence of macroeconomic news surprises is for all four countries under study during the NIRP period non-existent or noticeably weaker than during the preceding Zero Interest Rate Policy (ZIRP) period. Our results are consistent with the suggestion that NIRP is characterized by a lower bound that is no less ...
Globalization Institute Working Papers , Paper 354

Working Paper
Quantitative Easing and Bank Risk Taking: Evidence from Lending
Kandrac, John; Schlusche, Bernd (2017-10-12)
We empirically assess the effect of reserve accumulation as a result of quantitative easing (QE) on bank-level lending and risk taking activity. To overcome the endogeneity of bank-level reserve holdings to banks' other portfolio decisions, we employ instruments made available by a regulatory change that strongly influenced the distribution of reserves in the banking system. Consistent with theories of the portfolio substitution channel in which the transmission of QE depends in part on reserve creation itself, we document that reserves created in two distinct QE programs led to higher total ...
Finance and Economics Discussion Series , Paper 2017-125

Working Paper
What Caused the Great Recession in the Eurozone?
Hetzel, Robert L. (2016-08-23)
Since 2008, the Eurozone has undergone two recessions, which together constitute the "Great Recession." The combination of a decline in output and disinflation as well as a persistent decline in inflation suggests that contractionary monetary policy was one factor. This paper makes two methodological points. First, in analyzing the causes of the Great Recession, it is important to distinguish between credit and monetary policy. Second, a multiplicity of estimated models can "explain" the Great Recession. In practice, economists choose between models through an associated narrative that ...
Working Paper , Paper 16-10

Working Paper
Monetary Policy, Real Activity, and Credit Spreads : Evidence from Bayesian Proxy SVARs
Caldara, Dario; Herbst, Edward (2016-05)
This paper studies the interaction between monetary policy, financial markets, and the real economy. We develop a Bayesian framework to estimate proxy structural vector autoregressions (SVARs) in which monetary policy shocks are identified by exploiting the information contained in high frequency data. For the Great Moderation period, we find that monetary policy shocks are key drivers of fluctuations in industrial output and corporate credit spreads, explaining about 20 percent of the volatility of these variables. Central to this result is a systematic component of monetary policy ...
Finance and Economics Discussion Series , Paper 2016-049

Working Paper
Pandemic Recession Dynamics: The Role of Monetary Policy in Shifting a U-Shaped Recession to a V-Shaped Rebound
Kiley, Michael T. (2020-10-07)
COVID-19 has depressed economic activity around the world. The initial contraction may be amplified by the limited space for conventional monetary policy actions to support recovery implied by the low level of nominal interest rates recently. Model simulations assuming an initial contraction in output of 10 percent suggest several policy lessons. Adverse effects of constrained monetary policy space are large, changing a V-shaped rebound into a deep U-shaped recession absent large-scale Quantitative Easing (QE). Additionally, the medium-term scarring on economic potential can be large, and ...
Finance and Economics Discussion Series , Paper 2020-083

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