Tag Archives: Federal funds rate

QE3 and the FED: State-contingency and commitment emphasized

Today the Board of Governors of the Federal Reserve System published its decision to start a new round of quantitative easing and a revised announcement concerning the Federal Funds rate. Both legs of this decision have some interesting new aspects that show a central bank continually trying to expand the toolbox of monetary policy, and to be honest about its limitations when acting in an uncertain world. More specifically, the Fed re-introduces purchases of mortgage-backed securities (MBS) at a rate of $40 billion per month. No end date for the purchases is specified—at the contrary, it is emphasized that it will be extended if the economy does not pick up. … Continue reading

Share
Posted in Economics, Monetary policy | Tagged , , , , , , | Leave a comment

Fed “Fan Charts”

I recently wrote that USA had now entered the club of inflation targeting banks. This occurred when the Federal Reserve in April last year officially started mentioning an explicit inflation target, and also introduced press conferences after its policy meetings. Thereby, central criteria for being considered an inflation targeter were met. Following its January 25 meeting, the Fed initiated immediate publication of projections for the paths for main macroeconomic indicators (they have been available at least since October 2007 in slightly different style, but then along with the minutes of meetings which are published three weeks after the policy decision). The projections are presented along with “confidence bands,” in a … Continue reading

Share
Posted in Monetary policy | Tagged , , , , | 1 Comment

Come on Baby, Let’s Do the Twist!

After yesterday’s press release by the Fed, many commentators started talking about “Operation Twist” even though no such thing is mentioned in the release. Accompanying the press release on the Federal Reserve site, was, however, a document containing the term in parenthesis. Some could immediately be confused or even scared by this. Would this be yet an addition to the endless series of acronyms that has emerged during the financial crisis? Troubled and Worthless Interest-bearing Securities Task-force? Luckily not. It just reflects a return to the old days. And “twist” actually means what it says: “twist.”  In 1961, the Kennedy administration and the Fed engaged in an operation of selling … Continue reading

Share
Posted in Economics, Economists, Monetary policy | Tagged , , , , , , | Leave a comment

Commitment in action: Federal Reserve’s interest-rate “path”

It is a big shame that today’s FOMC meeting is one of those not to be followed by a press conference and a Q&A with Ben Bernanke. The policy decision is one of the more spectacular in recent times. Not because the Fed decided to keep the target for the Federal Funds Rate within the 0–0.25% range, where it has been since December 2008. The big news, however, is that the non-move is accompanied by an explicit commitment to keep it there for the next two years (if current conditions continue). This is very specific compared to previous talk about keeping rates low for “an extended period” (which has been … Continue reading

Share
Posted in Economics, Macroeconomics, Monetary policy | Tagged , , , , , , , | 5 Comments

“Hi Mom”: Ben Goes Inflation Targeting

I know. This is a VERY late post. I am going to write a few remarks about something that happened 2 1/2 weeks ago. Old news. Nevertheless, big events deserve a comment even after a while. In the April 27 video above, Federal Reserve chairman Ben Bernanke is seen in a press conference following the FOMC’s decision to keep the Fed funds rate unchanged within its 0-0.25% zone. What makes this of significance is that it, as I see it, marks the moment where the United States officially enters the group of inflation-targeting countries. He explicitly mentions two percent (or a “bit less”) as the average inflation rate consistent with … Continue reading

Share
Posted in Economists, Macroeconomics, Monetary policy | Tagged , , , | Leave a comment

Taylor Rules on the Taylor Rule

The rule for nominal interest rate setting that John Taylor proposed in his 1993 paper “Discretion versus Policy Rules in Practice“, Carnegie-Rochester Conference Series on Public Policy 39, 195-214, has had an enormous influence in the macroeconomics profession.  It is safe to say that numerous economists, practitioners and academics alike, since that paper have evaluated monetary policymaking using the Taylor rule as some kind of reference point. Empirically, a plethora of papers have estimated coefficients of Taylor-type rules for different countries during different periods. Theoretically, paper after paper on monetary policymaking adopt some form of the Taylor rule as a default specification of monetary policymaking (even undergraduate text books routinely … Continue reading

Share
Posted in Economists, Macroeconomics, Monetary policy | Tagged , , , , , , , , | 1 Comment