Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates

By Thomas M. Mertens and John C. Williams

AEA Papers and Proceedings, May 2019

This paper applies a New Keynesian model to analyze monetary policy in the presence of a low natural rate of interest and a lower bound on interest rates. Under standard inflation-targeting, inflation expectations will be anchored at a level below the inf...

Forward Guidance and Heterogeneous Beliefs

By Philippe Andrade, Gaetano Gaballo, Eric Mengus, and Benoît Mojon

American Economic Journal: Macroeconomics, July 2019

Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Fo...

Optimal Forward Guidance

By Florin O. Bilbiie

American Economic Journal: Macroeconomics, October 2019

Optimal forward guidance is the simple policy of keeping interest rates low for some optimally determined number of periods after the liquidity trap ends and moving to normal-times optimal policy thereafter. I solve for the optimal duration in closed form...

A Review Essay: David Kynaston's Till Time's Last Sand: A History of the Bank of England, 1694–2013

By Charles R. Bean

Journal of Economic Literature, December 2019

This essay reviews Till Time's Last Sand: A History of the Bank of England, 1694–2013, David Kynaston's history of the Bank of England (the Bank) from its foundation in 1694 to the present day. I focus on three themes running through his narrat...

Deconstructing Monetary Policy Surprises—The Role of Information Shocks

By Marek Jarociński and Peter Karadi

American Economic Journal: Macroeconomics, April 2020

Central bank announcements simultaneously convey information about monetary policy and the central bank's assessment of the economic outlook. This paper disentangles these two components and studies their effect on the economy using a structural vector au...

Did Unconventional Interventions Unfreeze the Credit Market?

By Hui Tong and Shang-Jin Wei

American Economic Journal: Macroeconomics, April 2020

This paper investigates whether and how unconventional interventions in 2008–2010 unfroze the credit market. We construct a dataset of 198 interventions for 16 countries during 2008–2010 and examine heterogeneous responses in stock prices to the inter...

The New Tools of Monetary Policy

By Ben S. Bernanke

American Economic Review, April 2020

To overcome the limits on traditional monetary policy imposed by the effective lower bound on short-term interest rates, in recent years the Federal Reserve and other advanced-economy central banks have deployed new policy tools. This lecture reviews wh...

Comments

By Robert S. Goldfarb, H. O. Stekler, David Neumark, William Wascher, and T. D. Stanley

Journal of Economic Perspectives, Summer 2002

The Global Financial Cycle after Lehman

By Silvia Miranda-Agrippino and Hélène Rey

AEA Papers and Proceedings, May 2020

Did the effect of US monetary policy on the global financial cycle change after the crisis? We analyze the international transmission of the Fed's policy shocks since 2009. We find similar effects for the policies that act mostly on the short end of the U...

Impact of Foreign Official Purchases of US Treasuries on the Yield Curve

By Erin L. Wolcott

AEA Papers and Proceedings, May 2020

Foreign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their positions. I find foreign official purchases have depressed medium-term yields, d...

Retrospectives: Economists and the Fed: Beginnings

By Perry Mehrling

Journal of Economic Perspectives, Fall 2002

As usually understood, the significant debate over the founding of the Fed was between advocates of the real bills doctrine and advocates of the quantity theory of money. This understanding however conflates two different distinctions: one between the ban...

Non-neutrality of Open-Market Operations

By Pierpaolo Benigno and Salvatore Nisticò

American Economic Journal: Macroeconomics, July 2020

We analyze the effects on inflation and output of unconventional open-market operations due to the possible income losses on the central bank's balance sheet. We first state a general Neutrality Property, and characterize the theoretical conditions suppor...

A Central Bank Theory of Price Level Determination

By Pierpaolo Benigno

American Economic Journal: Macroeconomics, July 2020

This paper develops a theory in which the central bank can control the price level without fiscal backing. It is shown that the remittances policy and the balance sheet of the central bank are important elements to specify. A central bank that is appropri...

Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance

By Kurt G. Lunsford

American Economic Review, September 2020

I show that the nature of the Federal Open Market Committee's (FOMC's) forward guidance language shapes the private sector's responses to monetary policy statements. From February 2000 to June 2003, the FOMC only gave forward guidance about economic outlo...

Quantitative Easing, Collateral Constraints, and Financial Spillovers

By John Geanakoplos and Haobin Wang

American Economic Journal: Macroeconomics, October 2020

The steady application of quantitative easing (QE) has been followed by big and nonmonotonic effects on international asset prices and capital flows. We rationalize these observations in a model in which a central bank buys domestic assets that serve as t...

Fighting Crises with Secrecy

By Gary Gorton and Guillermo Ordoñez

American Economic Journal: Macroeconomics, October 2020

How does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information external...

Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates

By Mauricio Ulate

American Economic Review, January 2021

After the Great Recession several central banks started setting negative nominal interest rates in an expansionary attempt, but the effectiveness of this measure remains unclear. Negative rates can stimulate the economy by lowering the rates that commerci...

Choosing the Federal Reserve Chair: Lessons from History

By Christina D. Romer and David H. Romer

Journal of Economic Perspectives, Winter 2004

Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress

By Jason Allen, Ali Hortaçsu, and Jakub Kastl

American Economic Journal: Microeconomics, May 2021

Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks' willingness to pay for liquidity during the 2008–2009 fina...

The Resilience of the Euro

[Symposium: European Union]

By Philip R. Lane

Journal of Economic Perspectives, Spring 2021

Over 2014–2019, the euro area charted a substantial post-crisis economic recovery while also reducing macro-financial vulnerabilities. The array of post-crisis institutional reforms has improved the capacity of the euro area to withstand adverse shocks,...