Tag Archives: Federal Reserve

Happy 2013

Hi. I haven’t been too active lately here. Been busy doing proper academic work like teaching and research. I may become more active next year, but I will stick to my principle that one doesn’t have to have an opinion, and vent it, about everything. Actually, the day where the news on TV announce that they cut their program short by 15 minutes due to lack of interesting news, or when a newspaper come in a short, cheaper edition during summer due to lack of important stuff to write about, then I will be happy. Too many just write because they want to write, or have an obligation to write. … Continue reading

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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

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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

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John Cochrane on QE2

I have previously mentioned John Cochrane on this blog as a good example of an economist who insists on using sound academic arguments in even the most heated debates. That this does not imply death by boredom, he shows in a recent commentary on quantitative easing at bloomberg.com : “Is QE2 a Savior, Inflator, or a Dud?: Business Class“. Ben Bernanke said the following about QE2 in March 2011: “Yields on 5- to 10-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities … Continue reading

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“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

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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

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The Fed and the ECB: “Spurious Bedfellows”

Some days ago, I wrote about an interesting post by Gavin Davies on his Financial Times blog, where he argued that European monetary policy, through the actions of the German Bundesbank and now the European Central Bank, follows the US Federal Reserve’s interest rate decisions with some delay. An observation leading him to label the FED and ECB “strange bedfellows”. The data behind the argument is seen in the following figure: The Federal Reserve’s policy intentions are throughout the period measured by the target value for the Federal Funds Rate (formally, this time series is discontinued as of December 2008, and I show the upper value of the 0-0.25% target … Continue reading

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Gavin Davies on the Fed and the ECB

Gavin Davies has an interesting post on his Financial Times blog. It is entitled “Strange bedfellows – the Fed and the ECB” and it discusses the co-movements between the Federal funds rate and the Deutschmark/Euro policy rate since 1987. There seems to be a leader-follower pattern, in the sense that Europe has followed the Fed with a 6-12 month lag. Davies concludes that this “is one of the most well established rules in the analysis of monetary policy making“. This is perhaps a somewhat strong statement, and I would, based on visual inspection (upon which one should be VERY careful), conjecture that most of this correlation is driven by the … Continue reading

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