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Discussion Paper
How Unconventional Are Large-Scale Asset Purchases?
The large-scale asset purchases (LSAPs) undertaken by the Fed starting in late November 2008 are widely considered to be a form of ?unconventional? monetary policy. Although these interventions are certainly unprecedented, this post shows that their effect on financial conditions is not that unconventional, in the sense that the relative effects of the LSAPs on returns across broad asset classes?nominal and real government bonds, stocks, and foreign exchange?are quite similar to those of more conventional policies, such as a reduction in the federal funds rate (FFR).
Discussion Paper
Changing Risk-Return Profiles
Are stock returns predictable? This question is a perennially popular subject of debate. In this post, we highlight some results from our recent working paper, where we investigate the matter. Rather than focusing on a single object like the forecasted mean or median, we look at the entire distribution of stock returns and find that the realized volatility of stock returns, especially financial sector stock returns, has strong predictive content for the future distribution of stock returns. This is a robust feature of the data since all of our results are obtained with real-time analyses ...
Discussion Paper
How Does U.S. Monetary Policy Affect Emerging Market Economies?
The question of how U.S. monetary policy affects foreign economies has received renewed interest in recent years. The bulk of the empirical evidence points to sizable effects, especially on emerging market economies (EMEs). A key theme in the literature is that these spillovers operate largely through financial channels—that is, the effects of a U.S. policy tightening manifest themselves abroad via declines in international risky asset prices, tighter financial conditions, and capital outflows. This so-called Global Financial Cycle has been shown to affect EMEs more forcefully than advanced ...
Report
Monetary policy and financial conditions: a cross-country study
Loose financial conditions forecast high output growth and low output volatility up to six quarters into the future, generating time-varying downside risk to the output gap, which we measure by GDP-at-Risk (GaR). This finding is robust across countries, conditioning variables, and time periods. We study the implications for monetary policy in a reduced-form New Keynesian model with financial intermediaries that are subject to a Value at Risk (VaR) constraint. Optimal monetary policy depends on the magnitude of downside risk to GDP, as it impacts the consumption-savings decision via the Euler ...
Report
The Federal Reserve and market confidence
We discover a novel monetary policy shock that has a widespread impact on aggregate financial conditions and market confidence. Our shock can be summarized by the response of long-horizon yields to Federal Open Market Committee (FOMC) announcements; not only is it orthogonal to changes in the near-term path of policy rates, but it also explains more than half of the abnormal variation in the yield curve on announcement days. We find that our shock is positively related to changes in real interest rates and market volatility, and negatively related to market returns and mortgage issuance, ...
Speech
Financial conditions and the monetary policy outlook
Dallas Fed President Lorie Logan delivered these remarks before the 65th National Association for Business Economics Annual Meeting in Dallas, Texas.
Speech
The Fed’s Emergency Facilities: Usage, Impact, and Early Lessons
Remarks at Hudson Valley Pattern for Progress (delivered via videoconference).
Speech
The U.S. economic outlook and monetary policy
Remarks at the Economic Club of New York, New York City.
Discussion Paper
What Do Financial Conditions Tell Us about Risks to GDP Growth?
The economic fallout from the COVID-19 pandemic has been sharp. Real U.S. GDP growth in the first quarter of 2020 (advance estimate) was -4.8 percent at an annual rate, the worst since the global financial crisis in 2008. Most forecasters predict much weaker growth in the second quarter, ranging widely from an annual rate of -15 percent to -50 percent as the economy pauses to allow for social distancing. Although growth is expected to begin its rebound in the third quarter absent a second wave of the pandemic, the speed of the recovery is highly uncertain. In this post, we estimate the risks ...
Speech
Monetary Policy in Times of Financial Stress
Remarks by Charles L. Evans President and Chief Executive Officer, Federal Reserve Bank of Chicago New York Association for Business Economics Harvard Club New York, New York