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Author: Stephen Morris Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
Has the Federal Open Market Committee's policy rule changed in recent years? This is difficult to answer given the zero lower bound environment for the federal funds rate throughout late 2008 to 2015. This paper addresses the problem using policymakers' projections for the near horizon from 2012 to 2016, which were often greater than the bound. Projections indicate inconsistent but overall diminishing responsiveness to inflation, a relatively stable and strong response to economic activity, and increasing short-run responsiveness to financial risk. Professional forecasters perceived the size of the response to economic activity, but not inflation, perhaps due to its relative volatility.
Author: Stephen Morris Publisher: ISBN: Category : Languages : en Pages : 30
Book Description
Has the Federal Open Market Committee's policy rule changed in recent years? This is difficult to answer given the zero lower bound environment for the federal funds rate throughout late 2008 to 2015. This paper addresses the problem using policymakers' projections for the near horizon from 2012 to 2016, which were often greater than the bound. Projections indicate inconsistent but overall diminishing responsiveness to inflation, a relatively stable and strong response to economic activity, and increasing short-run responsiveness to financial risk. Professional forecasters perceived the size of the response to economic activity, but not inflation, perhaps due to its relative volatility.
Author: John B. Taylor Publisher: University of Chicago Press ISBN: 0226791262 Category : Business & Economics Languages : en Pages : 460
Book Description
This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.
Author: Herman Royer Professor of Political Economy David H Romer Publisher: Brookings Institution Press ISBN: 0815724322 Category : Business & Economics Languages : en Pages : 423
Book Description
"Brookings Papers on Economic Activity" (BPEA) provides academic and business economists, government officials, and members of the financial and business communities with timely research on current economic issues. Contents - Democratic Change in the Arab World, Past and Present Eric Chaney (Harvard University) - Disentangling the Channels of the 2007-2009 Recession James Stock (Harvard University) and Mark Watson (Princeton University) - Macroeconomic Effects of FOMC Forward Guidance Jeffrey Campbell, Charles Evans, Jonas Fisher, and Alejandro Justiniano (Federal Reserve Bank of Chicago) - Is the Debt Overhang Holding Back Consumption? Karen Dynan (Brookings Institution) - The Euro's Three Crises Jay Shambaugh (Georgetown University) - Fiscal Policy in a Depressed Economy J. Bradford DeLong (University of California-Berkeley) and Lawrence Summers (Harvard University )
Author: Michael D. Bordo Publisher: Hoover Press ISBN: 081792566X Category : Business & Economics Languages : en Pages : 258
Book Description
With the inflation rate in the United States and many other countries on the rise for over a year and nearing double digits, the Hoover Institution hosted its 2022 conference on monetary policy. Policy makers, market participants, and academic researchers gathered to discuss the situation. Many agreed that low interest rates and high money growth were inappropriate given the high inflation rate and evidence that the United States has recovered from the deep recession induced by the pandemic and its policy response in 2020. The thoughtful papers and the thorough discussions in this volume of conference proceedings illustrate the debate about the reasons for this mismatch, as well as how to get back on track. They reflect a range of opinions and perspectives, including examination of the fiscal shock resulting from the COVID pandemic and the related borrowing and spending; emphasis on the value of adherence to rules versus discretion in setting Fed policy; lessons from history in the spikes in federal expenditures during times of war (including the pandemic) and in the timing of the Fed's use of its policy instruments; the role of central banks in the emerging inflation crisis; and strategies toward disinflation.
Author: Sora Chon Publisher: ISBN: Category : Macroeconomics Languages : en Pages : 69
Book Description
The dissertation explores the links between macroeconomic phenomena and monetary policy and to develop new econometric methods. In the first chapter, "Monetary Policy Rules and Macroeconomic Stability Revisited: Limited Information Approach under Identifying Restrictions, provides a new approach to limited information estimation consistent with the forward-looking monetary policy rule. Recently, the weak identification in the conventional estimation method has drawn attention to the estimation of a forward-looking monetary policy rule. This paper identified a particular range for the value of the concentration parameter, for which the generalized method of moments (GMM) suffers from the weak identification problem, while the proposed method does not. This implies that GMM estimation generates spurious weak identification in the estimation of a forward-looking monetary policy rule. The proposed approach allows us to provide stronger messages to the estimation of a forward-looking monetary policy rule. The estimation results confirm a change of monetary policy in the U.S. In the 1960-1979 sample, the policy was inactive and it did not react sufficiently to the expected deviation of inflation from its target. In contrast, under the 1979-1997 sample monetary policy actively responses to the inflation with a high degree of interest smoothing. The second chapter of the dissertation is the extension of the first chapter, "Estimation of a Time-varying Forward-looking Monetary Policy Rule: Limited Information Approach. In this chapter, I estimate a time-varying forward-looking monetary policy rule by considering a time-varying structural vector auto-regression (VAR) model for the monetary transition mechanism. Assuming that the time variation comes from the coefficients and the variance covariance matrix, I illustrate this via modeling multivariate stochastic volatility. In a foundational paper, Primiceri (2005) estimated a time-varying structural VAR with stochastic volatility after assuming monetary policy shocks to be independent of any other innovations without forward-looking variables. Because agents are assumed to be rational, monetary policy changes can be incorporated into future forecasts. Kim and Nelson (2006) used a single equation to investigate the estimation of a forward-looking monetary policy rule in relation to the forward-looking behavior of agents. To account for the endogeneity, they suggested a two-step estimation technique based on the control function approach. However, as Chon and Kim (2014) argued, the error term in instrumenting equations for forward-looking variables follows moving-average (MA) dynamics, resulting in additional information loss. Consequently, this paper illustrates that one can recover this MA structure after considering the reduced-form of the time-varying VAR; the procedure suggested in this paper resolves the possible weak identification issues. The third chapter of the dissertation is "Stock Market Reaction to Monetary Policy Changes: Identification through Heteroskedasticity with Markov-switching." This paper investigates the estimation issues surrounding the response of asset prices to monetary policy changes. Because of the simultaneous relationship between stock prices and policy decisions, and because both react to numerous other variables, estimation of the impact of stock price to monetary policy action is difficult. In this paper, I use the heteroskedastic structure of monetary policy shocks to identify stock market reactions to monetary policy changes following Rigobon and Sack (2004). Especially, in order to consider all possible sources which affect shifts in monetary policy shocks, such as the alteration of expectations about the future path of the monetary policy and a change in the timing of policy moves, I incorporate the Markov-switching framework to detect different state endogenously. The procedure proposed in this paper can reduce the potential bias caused by mis-specified timings in the shifts of monetary policy shocks and produce more precise estimate of the monetary policy actions on the stock market. Since the stock market is forward-looking, I focus on the surprised part of the policy actions within the conventional event-study framework. The empirical finding tells us that the heteroskedasticity on event day may well be a consequence of the asymmetric effects on the different types of policy actions: expansionary policy vs. contractionary policy. Also, we found that the unanticipated 25-basis point increase would decrease 1.91 percent in the S & P 500 returns.
Author: Davide Debortoli Publisher: International Monetary Fund ISBN: 1484311752 Category : Business & Economics Languages : en Pages : 56
Book Description
Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.
Author: James D. Hamilton Publisher: ISBN: Category : Economics Languages : en Pages : 35
Book Description
We introduce a novel method for estimating a monetary policy rule using macroeconomic news. We estimate directly the policy rule agents use to form their expectations by linking news' effects on forecasts of both economic conditions and monetary policy. Evidence between 1994 and 2007 indicates that the market-perceived Federal Reserve policy rule changed: the output response vanished, and the inflation response path became more gradual but larger in long-run magnitude. These response coefficient estimates are robust to measurement and theoretical issues with both potential output and the inflation target.
Author: John H. Cochrane Publisher: Hoover Press ISBN: 0817923764 Category : Business & Economics Languages : en Pages : 237
Book Description
As the Federal Reserve System conducts its latest review of the strategies, tools, and communication practices it deploys to pursue its dual-mandate goals of maximum employment and price stability, Strategies for Monetary Policy—drawn from the 2019 Monetary Policy Conference at the Hoover Institution—emerges as an especially timely volume. The book's expert contributors examine key policy issues, offering their perspectives on US monetary policy tools and instruments and the interaction between Fed policies and financial markets. The contributors review central bank inflation-targeting policies, how various monetary strategies actually work in practice, and the use of nominal GDP targeting as a way to get the credit market to work well and fix the friction in that market. In addition, they discuss the effects of the various rules that the Fed considers in setting policy, how the Fed's excessive fine-tuning of the economy and financial markets has added financial market volatility and harmed economic performance, and the key issues that impact achievement of the Fed's 2 percent inflation objective. The volume concludes by exploring potential options for enhancing our policy approach.
Author: Edward P. Herbst Publisher: Princeton University Press ISBN: 0691161089 Category : Business & Economics Languages : en Pages : 295
Book Description
Dynamic stochastic general equilibrium (DSGE) models have become one of the workhorses of modern macroeconomics and are extensively used for academic research as well as forecasting and policy analysis at central banks. This book introduces readers to state-of-the-art computational techniques used in the Bayesian analysis of DSGE models. The book covers Markov chain Monte Carlo techniques for linearized DSGE models, novel sequential Monte Carlo methods that can be used for parameter inference, and the estimation of nonlinear DSGE models based on particle filter approximations of the likelihood function. The theoretical foundations of the algorithms are discussed in depth, and detailed empirical applications and numerical illustrations are provided. The book also gives invaluable advice on how to tailor these algorithms to specific applications and assess the accuracy and reliability of the computations. Bayesian Estimation of DSGE Models is essential reading for graduate students, academic researchers, and practitioners at policy institutions.
Author: Stephen Morris
Author: Stephen Morris
Author: John B. Taylor
Author: Herman Royer Professor of Political Economy David H Romer
Author: Michael D. Bordo
Author: Sora Chon
Author: Davide Debortoli
Author: Athanasios Orphanides
Author: James D. Hamilton
Author: John H. Cochrane
Author: Edward P. Herbst