Monetary Policy and Central Banking
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Even Keel and the Great Inflation
During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years. Read More
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Fireside Chats: Communication and Consumers’ Expectations in the Great Depression
This paper shows how policy announcements can be used to manage expectations and have a role as a policy tool. Using regional variation in radio exposure, I evaluate the impact of President Franklin D. Roosevelt’s 1935 Fireside Chat, in which he showcased the introduction of important social policies, establishing a new cycle of the New Deal. I document that cities with higher exposure to the announcement exhibited a significant increase in spending on durable goods. I provide evidence that this result is not driven by wealth or other potentially confounding variables. The estimated effect is consistent with changes in expectations toward the policies announced. This paper shows the power of communication as a policy tool in affecting economic activity. Read More
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President Mester discusses pandemic recovery needs in CNBC interview
President Mester said both monetary and fiscal policy support are needed to broaden the recovery and make it more sustainable. Watch the interview here Read More
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Quantitative Easing and Direct Lending in Response to the COVID-19 Crisis
When the COVID-19 crisis hit the economy in 2020, the Federal Reserve responded with numerous programs designed to prevent a collapse in bank credit and firms’ available funds. I develop a dynamic general equilibrium model to study how these programs work and to evaluate their effectiveness. In the model, quantitative easing works through three channels: the expansion of bank reserves lowers a liquidity premium, the purchase of assets lowers a volatility risk premium, and the economic stimulus lowers a credit risk premium. Since bank reserves are currently larger than in the past, the liquidity premium channel is weaker, and quantitative easing is less effective. Direct lending to firms at a market rate is also less effective. Direct lending to firms at a subsidized rate can be more stimulative than quantitative easing, provided that it lowers firms’ marginal borrowing rate and user cost of capital. Read More
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President Mester Interviewed on Yahoo! Finance
President Mester said that GDP may be about 6 percent lower than last year. Watch the interview here Read More
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President Mester interviewed on CNBC
President Mester said the recovery will be a slow one and more economic support is needed. Watch the interview here Read More
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President Mester: path of virus to determine trajectory of recovery
President Mester said the pace of economic recovery from the pandemic-induced shutdown will depend on the success of efforts to control the spread of the coronavirus. Read More
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President Mester on CNBC’s Closing Bell
Fed’s Mester says economic growth ‘leveling off,’ sees more help needed. Read More
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The Information Effect of Monetary Policy: Self-Defeating or Optimal?
As the Federal Reserve has become more transparent about its decisions on the federal funds target rate, the general public has begun to regard the rate as not only a benchmark interest rate, but also as a signal about the state of the economy. However, the specific information considered by the public to be revealed is not clearly understood. We investigate this question and find that the information revealed by monetary policy decisions is regarding future output growth, not inflation, and that such an information effect is theoretically optimal and does not make interest-rate policies self-defeating. Read More
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President Mester and Jenell Ross, chair of the Cleveland Fed's Cincinnati Branch board, interviewed on Cincinnati Edition
Mester and Ross discussed their economic outlooks and the Fed's response to the pandemic in an interview on WVXU-FM. Read More
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President Mester and Chair Powell Participate in "Building a Resilient Workforce" program
The virtual discussion focused on efforts in Youngstown, Ohio, to strengthen the regional workforce amid the COVID-19 pandemic. Read More
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President Mester describes arc of COVID-19 economic comeback
President Mester was interviewed June 18 by Bill Kennedy, of the Philadelphia-based Global Interdependence Center. Read More
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President Mester writes in The Plain Dealer and Cleveland.com
President Mester writes in The Plain Dealer and Cleveland.com about the nation’s long-term economic challenges once we are back on a sustainable path of recovery from the coronavirus crisis. Read More
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President Mester looks at careful path to economic recovery from pandemic
President Mester said the U.S. should reopen the economy very cautiously to avoid a second shutdown and that cities and states may need additional federal assistance to deal with the health crisis. Mester made her remarks in an interview with Dan Loney, of Wharton Business Daily radio on SiriusXM. Read More
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President Mester discusses how COVID-19 pandemic impacts U.S. economy, Fed policy
President Mester told Bloomberg TV that the deep shock delivered by the pandemic prompted the Fed to devise programs to try to ensure the continued functioning of financial markets so that further economic damage is limited and households and businesses are positioned for recovery. Read More
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President Mester describes Fed efforts to “bridge” COVID-19 economic disruption
President Mester said the Fed is deploying multiple lending facilities and regulatory changes to build a “bridge to try to get households and businesses across to the other side of the pandemic shutdown period.” Read More
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President Mester takes questions at a City Club of Cleveland virtual forum
President Mester discussed the Fed’s response to the coronavirus outbreak. Read More
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President Mester explains Fed goals in responding to COVID-19 pandemic
President Mester said the Fed’s use of an array of lending programs and regulatory adjustments is aimed at helping to keep credit flowing to businesses and consumers until the pandemic runs its course and a recovery can begin. Mester made her remarks in a March 31 interview on CNBC’s Closing Bell. Read More
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Credit Market Frictions, Business Cycles, and Monetary Policy: The Research Contributions of Charles Carlstrom and Timothy Fuerst
Charles Carlstrom and Timothy Fuerst were prolific and prominent research economists who, until their untimely deaths a few years ago, were long-associated with the Federal Reserve Bank of Cleveland. Their myriad contributions include the incorporation of financial market imperfections into macroeconomic models and the study of optimal monetary policy. We provide an overview of their work and summarize a few key themes from a research conference held in their honor. Read More
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President Mester discusses economic implications of coronavirus outbreak on CNBC
President Mester told Squawk Box Europe that the Federal Reserve’s action on March 3 was necessary given the expected impact of COVID-19 on the U.S. economy. Read More
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President Mester talks about diversity with Reuters: 'You’re a central bank. You should be representing the public'
President Mester and other Fed officials were interviewed by Reuters about the Fed's diversity initiatives. Read More
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Output Gap, Monetary Policy Trade-offs, and Financial Frictions
This paper investigates how the presence of pervasive financial frictions and large financial shocks changes the optimal monetary policy prescriptions and the estimated dynamics in a New Keynesian model. We find that financial factors affect the optimal policy only to some extent. A policy of nominal stabilization (with a particular focus on targeting wage inflation) is still the optimal policy, although the central bank is now unable to fully stabilize economic activity around its potential level. In contrast, the presence of financial frictions and financial shocks crucially changes the size and shape of the estimated output gap and the relative importance of different shocks in driving economic fluctuations, with financial shocks absorbing explanatory power from labor supply shocks. Read More
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President Mester notes the emerging risk posed by the coronavirus outbreak in an interview with Bloomberg TV
Bloomberg: “Fed’s Mester Says Economic Fundamentals are Good; Virus Is a New Risk” Read More
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President Mester highlights strong position of consumers in Bloomberg TV interview
Cleveland Fed President Loretta J. Mester said strong consumer spending, supported by wage gains in a tight labor market, has offset weakness in manufacturing, putting the U.S economy in a good spot to begin the year. Mester offered her thoughts on the economy in a January 3 interview with Bloomberg TV's Michael McKee in San Diego. Read More
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President Mester discusses need for FedNow in American Banker interview
Cleveland Fed President Loretta J. Mester explained why FedNow, the Fed's faster payments initiative, is important for financial system resiliency in a November 21 interview at the bank with American Banker's John Heltman. Read More
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Forward Guidance under Imperfect Information: Instrument Based or State Contingent?
I study the optimal type of forward guidance in a flexible-price economy in which both the private sector and the central bank are subject to imperfect information about the aggregate state of the economy. In this case, forward guidance changes the private sector’s expectations about both future monetary policy and the state of the economy. I study two types of forward guidance. The first type is instrument based, in which case the central bank commits to a value of the policy instrument. The second type is state contingent, in which case the central bank reveals its imperfect information and commits to a policy response rule. The key message is that forward guidance allows the central bank to reduce ex-ante price fluctuations by making the optimal trade-off between price deviations after the actual shock and after the noise shock. However, this benefit comes with a cost under the instrument-based forward guidance; that is, since firms perfectly know the change in monetary policy and prices are fully flexible, the real output level becomes independent of monetary policy. Consequently, while state-contingent forward guidance guarantees ex-ante welfare improvement, instrument-based forward guidance improves ex-ante welfare only if the central bank’s information is sufficiently precise. Read More
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President Mester sees businesses watching, waiting on global developments in Pittsburgh Post-Gazette interview
Cleveland Fed President Loretta J. Mester said businesses in the Fourth District are taking a wait-and-see approach to capital spending and hiring amid uncertainty over trade and tariffs and a global economic slowdown. Mester made her remarks in an October 17 interview with Tim Grant, of the Pittsburgh Post-Gazette. Read More
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President Mester assesses economy's bright spots, headwinds in CNBC interview
Cleveland Fed President Loretta J. Mester observed that the U.S. economy is holding up well thanks to solid consumer spending even as a global slowdown weighed on U.S. manufacturing. She was interviewed on CNBC's Closing Bell on October 4 in New York. Read More
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Assessing International Commonality in Macroeconomic Uncertainty and Its Effects
This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of significant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new estimates of international macroeconomic uncertainty indicate that surprise increases in uncertainty reduce output and stock prices, adversely affect labor market conditions, and in some economies lead to an easing of monetary policy. Read More
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President Mester offers outlook and policy views in interviews with CNBC, Bloomberg TV and Yahoo Finance
Cleveland Fed President Loretta J. Mester discussed how trade tensions and a slowdown in global growth factor into her assessment of the U.S. economy and the appropriate path for monetary policy in August 23 interviews with CNBC's Steve Liesman, Bloomberg TV's Michael McKee, and Yahoo Finance's Brian Cheung at the Kansas City Fed's annual policy conference in Jackson Hole, Wyoming. Read More
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Bitcoin’s Decentralized Decision Structure
With the introduction of bitcoin, the world got not just a new currency, it also got evidence that a decentralized control structure could work in practice for institutional governance. This Commentary discusses the advantages and disadvantages of centralized and decentralized control structures by examining the features of the bitcoin payment system. We show that while the decentralized nature of the Bitcoin network "democratizes" payments, it is not obvious that the approach increases the equity or efficiency of markets or that the costs of the decentralized control structure won’t outweigh the benefits in the long run. Read More
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The Flattening of the Phillips Curve: Policy Implications Depend on the Cause
According to the historical relationship known as the Phillips curve, strengthening of the economy is commonly associated with increasing inflation. With inflation having only modestly picked up in the past few years as the economy has become more robust, many believe the Phillips curve relationship has weakened, with the curve becoming flatter. I show that the flattening can be due to very different types of structural changes and that knowing the type of change that has occurred is crucial for choosing the appropriate monetary policy. Read More
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President Mester describes the Federal Reserve's role in the U.S. economy to BBC's Business Matters
Cleveland Fed President Loretta J. Mester explains how the Fed works in the communities it serves and how the housing crisis resembled an opera in a July 4 interview on the BBC's Business Matters. Read More
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President Mester discusses need to assess path of U.S. economy in Bloomberg TV interview
Cleveland Fed President Loretta J. Mester explained what she wants to see in economic data before determining whether any adjustments in policy are needed in a July 3 Bloomberg TV interview in London. Read More
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Monetary Policy and Macroeconomic Stability Revisited
A large literature has established that the Fed’s change from a passive to an active policy response to inflation led to U.S. macroeconomic stability after the Great Inflation of the 1970s. This paper revisits the literature’s view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for equilibrium indeterminacy and adopts a sequential Monte Carlo algorithm. The model empirically outperforms canonical New Keynesian models that confirm the literature’s view. Our estimated model shows an active policy response to inflation even during the Great Inflation. More importantly, a more active policy response to inflation alone does not suffice for explaining the U.S. macroeconomic stability, unless it is accompanied by a change in either trend inflation or policy responses to the output gap and output growth. This extends the literature by emphasizing the importance of the changes in other aspects of monetary policy in addition to its response to inflation. Read More
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Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy
The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure and contributes to better policy by allowing for more competition in ideas and reducing groupthink. Read More
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Macroprudential Policy: Results from a Tabletop Exercise
This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020:Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and discussing the use of monetary and macroprudential policy tools, participants were then presented with a hypothetical negative shock to commercial real estate valuations that occurred in the second half of 2020. Participants then discussed the use of the tools during an incipient downturn. Some of the findings of the exercise were that during an asset boom, there were limits to the effectiveness of US macroprudential tools in controlling narrow risks and that changes to the fed funds rate may not always simultaneously meet macroeconomic and financial stability goals. Some other findings were that during a downturn, it would be desirable to use high-frequency indicators for deciding when to release the countercyclical capital buffer (CCyB) and that tensions exist between microprudential and macroprudential goals when using the CCyB and the stress test. Read More
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President Mester assesses jobs report and U.S. economy, spells out policy approach in interviews with CNBC and Bloomberg
Cleveland Fed President Loretta J. Mester explained her intention to take a patient approach to inflation in light of strong labor markets and other positive economic conditions in May 3 interviews with CNBC's Steve Liesman and Bloomberg TV's Michael McKee at the Hoover Institution's monetary policy conference in Stanford, California. Read More
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Multiperiod Loans, Occasionally Binding Constraints, and Monetary Policy: A Quantitative Evaluation
We study the implications of multiperiod mortgage loans for monetary policy, considering several realistic modifications—fixed interest rate contracts, a lower bound constraint on newly granted loans, and the possibility of the collateral constraint to become slack—to an otherwise standard DSGE model with housing and financial intermediaries. We estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent US housing market boom and bust. We show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle, with weaker effects observed when house prices are high or start falling sharply. We also find that higher average loan duration makes monetary policy less effective and may lead to asymmetric responses to positive and negative monetary shocks. Read More
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Variation in the Phillips Curve Relation across Three Phases of the Business Cycle
We use recently developed econometric tools to demonstrate that the Phillips curve unemployment rate–inflation rate relationship varies in an economically meaningful way across three phases of the business cycle. The first (“bust phase”) relationship is the one highlighted by Stock and Watson (2010): A sharp reduction in inflation occurs as the unemployment rate is rising rapidly. The second (“recovery phase”) relationship occurs as the unemployment rate subsequently begins to fall; during this phase, inflation is unrelated to any conventional unemployment gap. The final (“overheating phase”) relationship begins once the unemployment rate drops below its natural rate. We validate our findings in a forecasting exercise and find statistically significant episodic forecast improvement. Our analysis allows us to provide a unified explanation of many prominent findings in the literature. Read More
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The Informational Effect of Monetary Policy and the Case for Policy Commitment
I explore how asymmetric information between the central bank and the private sector changes the optimal conduct of monetary policy. I build a New Keynesian model in which private agents have imperfect information about underlying shocks, while the central bank has perfect information. In this environment, private agents extract information about the underlying shocks from the central bank’s interest-rate decisions. This informational effect weakens the direct effect of monetary policy: When the central bank adjusts the interest rate to offset the effects of underlying shocks, the interest rate also reveals information about the realization of underlying shocks. Because private agents have more precise information about the shocks and consequently react more aggressively to it, the economy becomes harder to stabilize with monetary policy. I show that committing to the optimal state-contingent policy rule alleviates this problem by controlling the information revealed through the interest rate. Read More
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President Mester gives early 2019 outlook, views on inflation, monetary policy in CNBC, Bloomberg interviews
Cleveland Fed President Loretta J. Mester discussed her outlook for the U.S. economy and her intention to assess incoming data to inform an appropriate policy path, as well as thoughts on inflation and the partial government shutdown in January 4 interviews with CNBC's Squawk Box and Bloomberg TV's Bloomberg Markets in Atlanta. Read More
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President Mester discussed her outlook for the economy and views on monetary policy on Wharton Business Radio
Cleveland Fed President Loretta J. Mester discussed her outlook for the economy and views on monetary policy during an interview on the 'Behind the Markets' program on Wharton Business Radio. Read More
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Understanding the Aspects of Federal Reserve Forward Guidance
This paper studies the effects of Federal Open Market Committee (FOMC) forward guidance language. I estimate two policy surprises at FOMC meetings: a change in the current federal funds rate and an orthogonal change in the expected path of the federal funds rate. From February 2000 to June 2003, the FOMC only gave forward guidance about risks to the economic outlook, and a surprise increase in the expected federal funds rate path had expansionary effects. This is consistent with models of central bank information effects, where a positive economic outlook causes private agents to revise up their expectations for the economy. From August 2003 to May 2006, the FOMC also gave forward guidance about policy inclinations, and a surprise increase in the federal funds rate path had contractionary effects. These results are consistent with standard macroeconomic models of forward guidance. Overall, the effects of forward guidance depend on the FOMC’s choice to use one or both of the economic-outlook and policy-inclination aspects of forward guidance. Read More
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President Mester reviews her economic outlook and policy views on CNBC
Cleveland Fed President Loretta J. Mester explained how her views on the approrpiate path for monetary policy depend on developments with the economic outlook on CNBC's Squawk Box. Read More
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All Fluctuations Are Not Created Equal: The Differential Roles of Transitory versus Persistent Changes in Driving Historical Monetary Policy
The historical analysis of FOMC behavior using estimated simple policy rules requires the specification of either an estimated natural rate of unemployment or an output gap. But in the 1970s, neither output gap nor natural rate estimates appear to guide FOMC deliberations. This paper uses the data to identify the particular implicit unemployment rate gap (if any) that is consistent with FOMC behavior. While its ability appears to have improved over time, our results indicate that, both before the Volcker period and through the Bernanke period, the FOMC distinguished persistent movements in the unemployment rate from other movements; implicitly such movements were treated as an intermediate target, one that departs substantially from conventional estimates of the natural rate. We further investigate historical FOMC responses to inflation fluctuations. In this regard, FOMC behavior changed in the Volcker-Greenspan-Bernanke period: its response to the inflation rate became much stronger, and it focused more intensely on very persistent movements in this variable. Our results shed light on the “Great Inflation” experience of the 1970s, and are consistent with the view that political pressures effectively limited the FOMC response to the buildup of inflation. They also suggest new directions for DSGE modeling. Read More
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President Mester on Interest Rates, Yield Curve, Inflation in Bloomberg TV interview
Cleveland Fed President Loretta J. Mester discussed the case for gradually raising interest rates, signals from the yield curve, and the Fed's inflation goal in an August 24 appearance on Bloomberg TV. Mester was interviewed by Bloomberg's Michael McKee during the Kansas City Fed's annual conference in Jackson Hole, Wyoming. Read More
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Some Evidence on Secular Drivers of US Safe Real Rates
We study long-run correlations between safe real interest rates in the United States and over 20 variables that have been hypothesized to influence real rates. The list of variables is motivated by the familiar intertermporal IS equation, by models of aggregate savings and investment, and by reduced form studies. We use annual data, mostly from 1890 to 2016. We find that safe real interest rates are correlated as expected with demographic measures. For example, the long-run correlation with labor force hours growth is positive, which is consistent with overlapping generations models. For another example, the long-run correlation with the proportion of 40- to 64-year-olds in the population is negative. This is consistent with standard theory where middle-aged workers are high-savers who drive down real interest rates. In contrast to standard theory, we do not find productivity to be positively correlated with real rates. Most other variables have a mixed relationship with the real rate, with long-run correlations that are statistically or economically large in some samples and by some measures but not in others. Read More
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Warehousing: A Historical Lesson in Central Bank Independence
This Economic Commentary explains how warehousing—a seemingly innocuous institutional arrangement between the Federal Reserve and the US Treasury—came to threaten the Fed’s independence. Warehousing began as an arcane procedure designed to help the Treasury cover a specific type of foreign-exchange exposure. It then grew into a supplemental source of funding for the Treasury's foreign-exchange interventions. Eventually the procedure morphed into a sizeable off-budget source of funding for other Treasury activities and seemed an inappropriate subversion of the congressional appropriations process, a development that raised concerns within the Fed about its ability to conduct monetary policy free from political concerns. Read More
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The Federal Funds Market since the Financial Crisis
Through the federal funds market, commercial banks used to supply each other with overnight liquidity. But since the financial crisis, the banking system has been awash in reserves and the federal funds rate has been near zero, leaving banks little incentive to participate. Still, the market continues to operate, but it has changed. Read More
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Monetary Policy and Inequality
This Commentary examines the link between monetary policy and income and wealth inequality by reviewing the theoretical channels that have been proposed and examining the empirical evidence on their importance. The analysis suggests that the magnitude of any redistributive consequences of conventional monetary policy seems to be small. Evidence that unconventional monetary policies have led to increases in inequality is still inconclusive. Read More
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Fiscal Dominance and US Monetary: 1940–1975
This paper investigates the frictions that existed between the Federal Reserve's monetary policies and the US Treasury's debt-management operations from the onset of the Second World War through the end of the Federal Reserve's even-keel actions in mid-1975. Read More
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The Fed’s Yield-Curve-Control Policy
Because many central banks still face policy rates that are uncomfortably close to zero, they may consider adding a long-term interest-rate target to their short-term target to give themselves "yield-curve control." The Federal Reserve's foray into similar territory around the Second World War suggests doing so could create constraints on monetary policy that are not easily removed. Read More
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Too-Big-to-Fail before the Fed
Before the Federal Reserve existed, private bank clearing houses provided emergency lending to member banks during financial crises. This behavior strongly suggests that "too-big-to-fail" is not the problem causing modern crises. Read More
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Term Premium Variability and Monetary Policy
Two traditional explanations for the mean and variability of the term premium are the time-varying risk premia on long bonds and the segmented markets between long- and short-term bonds. This paper integrates these two approaches into a medium-scale DSGE model, considering two sources of business cycle variability. Read More
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Central Bank Lending in a Liquidity Crisis
Study shows that central banks should respond to liquidity crises by lending directly to banks that will be solvent once market conditions have returned to normal. Read More
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How Did Pre-Fed Banking Panics End?
How did pre-Fed banking crises end? How did depositors' beliefs change? We detail the process during the National Banking Era, 1863-1914. Read More
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President Mester offers policy outlook in Bloomberg TV interview
President Mester discussed the resilience of the U.S. economy, financial weakening in China and other potential influences on monetary policy in an interview with Bloomberg TV's Brendan Greeley broadcast January 4. Read More
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Even Keel and the Great Inflation
This working paper has been removed at the request of the authors. A new version is WP 20-33. Read More
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President Mester discusses economy, monetary policy with Washington Post
President Mester explained why she thinks the economy can handle an interest rate increase in an interview with the Washington Post's Ylan Mui published December 4. Read More
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The Federal Reserve System and World War I: Designing Policies without Precedent
We suggest two reasons why the Federal Reserve failed to prevent the collapse of intermediation during the Great Depression. Read More
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Mutable Economic Laws and Calculating Unemployment and Output Gaps—An Application to Taylor Rules
Conclusions about Fed policy based on the Taylor rule depend on how accurately potential output or the NAIRU are measured. Both concepts are hard to measure, so care should be taken when using the Taylor to predict Fed policy actions. Read More
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The 2012 Eurozone Crisis and the ECB's OMT Program: A Debt-Overhang Banking and Sovereign Crisis Interpretation
This paper develops a model to interpret the 2012 eurozone crisis and the ECB's policy response. Read More
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Paper Money and Inflation in Colonial America
In colonial America, both the quantity and quality of money contributed to inflation. Read More
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Boots on the Ground
Forefront interviews 3 Cleveland Fed board and council members in a wide-ranging conversation. Read More
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Excess Reserves: Oceans of Cash
Before the financial crisis, banks did not hold much in cash reserves above what the Fed required. Now they hold a lot of excess reserves because the costs and benefits of doing so have changed. Read More
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Optimism at the OBL
Before a sold-out crowd in Columbus on Wednesday, February 4, Cleveland Fed president and CEO Loretta J. Mester shared her perspective on the US economy. Read More
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Changes in the Use of Electronic Means of Payment: 1995-2013
This article updates the tables published in an article by Loretta J. Mester in the March/April 2000 issue of Federal Reserve Bank of Philadelphia’s Business Review and last updated in the Third Quarter 2012 issue. Read More
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The Great Inflation
Price pressures seem quiet—almost too quiet. In October, the PCE chain price index increased 1.4 percent on a year-over-year basis. Read More
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Targeting Long Rates in a Model with Segmented Markets
This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure. Read More
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The Evolution of the Federal Reserve Swap Lines since 1962
In this paper, we describe the evolution of the Federal Reserve's swap lines from their inception in 1962. Read More
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Evaluating Progress Toward the Fed's Inflation Target
Since January 2012, the Federal Open Market Committee (FOMC) has explicitly stated an inflation target of 2 percent. Determining just how close we are to the FOMC's target depends on which inflation measure we look at. Read More
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Federal Reserve Policy and Bretton Woods
During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. Read More
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Bitcoin versus the Dollar
Though it's perhaps too early to assess the future of bitcoin, in terms of number of transactions, total value, and even price stability, it is not currently a major competitor of the US dollar. Read More
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The Evolution of Uncertainty and Risk around the FOMC’s Macroeconomic Forecasts: Back to Normal
Over the last year or so, economic conditions have begun to normalize. Meanwhile, the forecast uncertainty of FOMC participants has fallen back to more normal levels. Read More
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Adding Double Inertia to Taylor Rules to Improve Accuracy
A Taylor rule captures the historical behavior of the federal funds rate better when it also includes a partial-adjustment factor. We add another type of partial adjustment and improve the rule's fit. Read More
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Cooperation, Conflict, and the Emergence of a Modern Federal Reserve
The Fed is a model of an independent central bank, but this has not always been the case. In the past US monetary policy has often yielded to other governmental requirements. Independence is ultimately fragile, but essential to maintain. Read More
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Updated Policy Projections and Improvement in the Unemployment Rate
In March, the Federal Open Market Committee (FOMC) released its updated Summary of Economic Projections (SEP). Read More
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What’s Behind the Decline in Tri-party Repo Trading Volumes?
Total collateral value in the tri-party repo market rose steeply after 2011, peaked toward the end of 2012, and then fell steeply. The decline may have been caused by an increase in Fed purchases and holdings of agency securities. Read More
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Money Market Mutual Funds and Financial Stability
To assess the risk posed by money market funds to the financial system, we compare the aggregate portfolios of funds before and after the crisis and look at their liquidity positions since 2011. Read More
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Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank
Independence is the hallmark of modern central banks, but independence is a mutable and fragile concept, because the governments to whom central banks are ultimately responsible can have objectives that take precedence over price stability. Read More
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Using an Improved Taylor Rule to Predict When Policy Changes Will Occur
A standard Taylor rule, which expresses the federal funds rate as a function of inflation, the unemployment gap, and the past federal funds rate, tracks the federal funds rate well over time. We improve the fit by adding employment growth Read More
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Liquidity Provision during the Crisis of 1914: Private and Public Sources
We investigate how a banking panic was avoided in the crisis of 194 by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions. Read More
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When Might Federal Funds Rate Lift Off?
The Federal Open Market Committee has been providing guidance to help markets anticipate when it will begin raising the federal funds rate target. Read More
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Even Keel and the Great Inflation
This working paper has been removed at the request of the authors. A new version is WP 20-33. Read More
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The Limitations of Foreign-Exchange Intervention: Lessons from Switzerland
Since the mid-1990s, monetary authorities in most large developed countries have backed away from foreign-exchange intervention-buying and selling foreign currencies to influence exchange rates. Read More
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Thresholds or Dates in Monetary Policy Communications
Since the onset of the financial crisis, the Federal Reserve has been using two main tools to carry out its monetary policy. Read More
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Shifting Expectations and Interest Rates
By simply changing their views about future economic conditions and the likely policy response, monetary policymakers can alter financial conditions in the present. Read More
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Monetary Policy Tightening and Long-Term Interest Rates
The Federal Open Market Committee (FOMC) has maintained an accommodative monetary policy ever since the 2007 recession, and some financial market participants are concerned that long-term interest rates may increase ... Read More
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What Constitutes Substantial Employment Gains in Today's Labor Market?
The Federal Open Market Committee (FOMC) has tied its asset purchases to a "substantial improvement" in labor market conditions. Read More
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Close but not a Central Bank: The New York Clearing House and Issues of Clearing House Loan Certificates
The paper examines the New York Clearing House (NYCH) as a lender of last resort by looking at clearing-house-loan-certificate borrowing during five banking panics of the National Banking Era (1863-1913). Read More
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Recent Changes in FOMC Communication and the Committee’s Updated Projections
Over time, the Federal Open Market Committee (FOMC) has sought to improve its public communications by providing more guidance on the likely future path of monetary policy. Read More
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Liquidity Provision during the Crisis of 1914: Private and Public Sources
We investigate how a banking panic was avoided in the crisis of 194 by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions. Read More
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Monetary Policy: From There to Here to Where?
Chief policy officer Mark Sniderman shares his views on how the Federal Reserve's framework for conducting monetary policy has evolved over the past decade. Read More
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Persistent Uncertainty for Economic Policymakers
The uniqueness of the most recent recession and its connection to a financial crisis has provided many challenges to policymakers, including the FOMC. Read More
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Recent Changes in National Savings
Economists study national savings—the share of national output not consumed by households, businesses, or the government—because it is the main source of funds available for domestic investment in new capital goods ... Read More
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Leverage, Investment, and Optimal Monetary Policy
We study optimal monetary policy in an economy where the debt overhang of firms leads to underinvestment and underproduction. Read More
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How Long Will QE3 Last?
In September, the Federal Open Market Committee announced what has widely been referred to as QE3 (quantitative easing 3). Read More
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Fiscal Multipliers under an Interest Rate Peg of Deterministic vs. Stochastic Duration
This paper revisits the size of the fiscal multiplier. The experiment is a fiscal expansion under the assumption of a pegged nominal rate of interest. Read More
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Bretton Woods, Swap Lines, and the Federal Reserve’s Return to Intervention
This paper describes the United States’ first line of defense against shortcomings in the Bretton Woods system, which threatened the system’s continuation as early as 1960. Read More
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The Panic of 1907
This paper summarizes the academic literature on the Panic of 1907 in the United States. Read More
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Time-Consistent Rules in Monetary and Fiscal Policy
The intended effects of a government policy can be distorted by the public's expectations about how strictly it will be enforced. Read More
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The Evolution of the FOMC’s Economic Projections in 2012
Along with the September meeting statement, the Federal Open Market Committee also released its updated projections for key economic indicators. Read More
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Where Would the Federal Funds Rate Be, If It Could Be Negative?
In the wake of Great Recession, the Federal Reserve engaged in conventional monetary policy actions by reducing the federal funds rate. Read More
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Policy Rules in Macroeconomic Forecasting Models
This Commentary describes how some of the Cleveland Fed's macroeconomic forecasting models have been modified to use a Taylor rule for monetary policy. Read More
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Balance Sheet Implications of New Fed Policies
Since the target federal funds rate bottomed out near its zero lower bound during the financial crisis, the Federal Reserve's balance sheet has been an important policy tool. Read More
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Policy Rule Changes
One area of active interest for both policymakers and market watchers is to find a simple rule (or rule of thumb) that approximates Fed policy on interest rates. Read More
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A Brief Empirical History of U.S. Foreign-Exchange Intervention: 1973-1995
If official interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements. Read More
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Troubled Waters and the Bank of England’s Funding for Lending Scheme
With economies drifting into the doldrums, central banks are looking for ways to hoist more sail. Read More
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The Evolving State of the Fed’s Security Holdings
Prior to the financial crisis, the Fed's security holdings were restricted to a mix of Treasury securities, which consisted of a combination of short-term bills and longer-term notes and bonds. Read More
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Communication, Credibility, and Price Stability: Lessons Learned from Japan
Over the past couple of decades, central banks have been taking steps to increase the transparency of their monetary policies through clearer communications with the public. Read More
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A Quick Look at Fed Forecasting
During the Chairman's recent press conferences, the first topic that he addressed was the Federal Open Market Committee's (FOMC) set of economic projections. Read More
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Monetary Policy and the FOMC’s Economic Projections
The Federal Reserve has further increased its transparency over the last couple of years. Read More
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Is the Renminbi Challenging the Dollar’s Reserve Status?
Since its inception in 1999, the euro has gained ground against the dollar as an official reserve-a currency that foreign governments hold to facilitate their transactions in foreign-exchange markets. Read More
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New York Fed Breaks Up with Maiden II
Back when the financial crisis was in full swing, a number of simultaneously exploding problems struck at AIG (American International Group). Read More
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Epilogue: Foreign-Exchange-Market Operations in the Twenty-First Century
Foreign-exchange operations did not end after the United States stopped its activist approach to intervention. Read More
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When Should Children Start School?
This paper presents evidence that instrumental variable frameworks do not identify age effects for the youngest children of a cohort using the results of statistical tests for essential heterogeneity in initial enrollment decisions. Read More
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Play by the (Taylor) Rules
The interest rate projections released after the January Federal Open Market Committee (FOMC) meeting were another step toward increased Fed transparency. Read More
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More Transparency, But Not a Crystal Ball
On January 3, the Fed released the minutes from the December Federal Open Market Committee (FOMC) meeting and revealed that it will begin publishing the Committee's interest rate projections. Read More
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Central Bank Liquidity Swaps
Two weeks ago, the Federal Reserve took action to expand the capabilities of its liquidity swap lines with other central banks. Read More
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Substitution between Net and Gross Settlement Systems: A Concern for Financial Stability?
This paper studies the factors that drive the relative importance of net and gross settlement systems over the short run, using transaction volumes from countries that have had both a net and a gross settlement system at the same time. Read More
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Why Some European Countries and Not the U.S.?
These days it seems it is just a matter of time until we hear about the next euro zone country whose interest rates on sovereign debt will start soaring. Read More
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Policy Innovations at the Zero Lower Bound
The late summer and early fall bore witness to two new innovations in monetary policy. Read More
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Sovereign Debt Implications on the European Banking System
As European leaders work to define the terms of the European Financial Stability Facility (EFSF), concerns have arisen about sovereign debt write-downs. Read More
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U.S. Monetary-Policy Evolution and U.S. Intervention
We argue that the Federal Reserve's decision to abandon foreign exchange intervention in 1995 was necessary to secure monetary policy credibility. Read More
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A Medium Scale Forecasting Model for Monetary Policy
This paper presents a 16-variable Bayesian VAR forecasting model of the U.S. economy for use in a monetary policy setting. Read More
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When Should Children Start School?
This paper presents evidence that instrumental variable frameworks do not identify age effects for the youngest children of a cohort using the results of statistical tests for essential heterogeneity in initial enrollment decisions. Read More
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The Shout with Operation Twist
Much attention has been given to the Federal Open Market Committee’s September decision to extend the average maturity of its portfolio by selling short-term Treasury securities and purchasing longer-term Treasury securities. Read More
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The Global Slowdown and Central Banks’ Responses
After hitting a peak sometime in the middle of 2010, the economic recovery seems to have stalled. This observation seems to be true not only of the U.S. economy, but also of other developed economies and some emerging economies. Read More
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Interest Rates Have Responded to the Fed’s New Language
At its August policy meeting, the Federal Reserve took the unprecedented step of establishing a specific future date for policy action given current economic conditions. Read More
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Indexed Debt Contracts and the Financial Accelerator
This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. Read More
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A Subtle Shift in FOMC Policy
At his second press conference, Chairman Bernanke was asked whether the Fed would ever institute an explicit numerical inflation-targeting policy. Read More
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On the Evolution of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions
Attitudes about foreign-exchange-market intervention in the US evolved in tandem with views about monetary policy as policy makers grappled with the problem of having more economic objectives than independent instruments with which to achieve them. Read More
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Policymaking for the Future
It was one of the most highly anticipated events so far this year, and we are not talking about the royal wedding. Read More
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Potential Risks Associated with an Itchy Trigger Finger
Recent comments on monetary policy have focused more and more on containing the inflationary risks posed by rising food and commodity prices. Read More
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The National Banking System: The National Bank Note Puzzle
The era of the National Banking System (1863-1913) has been a puzzling one for monetary theorists and economic historians for well over a century. Read More
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The National Banking System: Empirical Observations
This paper provides a summary of the main features of U.S. financial and banking data during the period of the National Banking System (1863–1914). Read More
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The National Banking System: A Brief History
We review the positive and normative effects of a minimum wage in various versions of a search-theoretic model of the labor market. Read More
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US Intervention during the Bretton Woods Era: 1962-1973
This paper investigates foreign exchange intervention by the Federal Reserve and the Treasury in the 1960s. Read More
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How Should We Measure Success?
In the nearly two and a half years since the onset of the financial crisis, the Fed has purchased over $2 trillion in long-term assets. Read More
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Economic Projections from the January FOMC Meeting
Four times a year, we get a glimpse of the Federal Open Market Committee’s (FOMCs) forecasts for economic growth, unemployment, and inflation. Read More
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The Execution of the AIG Exit Plan
On January 14, American International Group (AIG), paid down the remaining balances on its loans at the New York Fed—removing the Fed from any direct exposure to AIG, and in accordance with a recapitalization plan announced on September 30, 2010. Read More
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On the Coexistence of Money and Higher-Return Assets and its Social Role
This paper adopts mechanism design to tackle the central issue in monetary theory, namely, the coexistence of money and higher-return assets. Read More
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U.S. Intervention and the Early Dollar Float: 1973-1981
The dollar’s depreciation during the early floating rate period, 1973–1981, was a symptom of the Great Inflation. Read More
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W(h)ither the Fed's Balance Sheet?
The Federal Reserve balance sheet's size and composition have changed dramatically since September 2008. Read More
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The Balance Sheet Recovery
In the past, deep recessions have been followed by rapid recoveries. Not this time. Real GDP has been growing at a 2.9 percent rate since the end of the recession. The current level of GDP is still below its 2007 peak, after almost three years. Read More
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Economic Projections from the November FOMC Meeting
Four times a year, we get a glimpse of the Federal Open Market Committee’s forecasts for economic growth, unemployment, and inflation. Read More
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A Positive Trend for the Fed’s Exposure to AIG
One of the key arrangements used to avoid the bankruptcy of American International Group (AIG) in the fall of 2008 was the creation of two special purpose vehicles (SPVs) named Maiden Lane II and Maiden Lane III. Read More
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FOMC Keeps It Steady Ahead
On September 21, the Federal Open Market Committee (FOMC) reaffirmed its commitment to keep the Federal Funds rate within the range 0 to 1/4 percent, as the economy continues with its fragile recovery. Read More
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Eurodollar Futures, Taylor Rules, and the Conduct of Future Monetary Policy
When interest rates are zero and policymakers would like to lower rates further, the usual monetary policy operations are no longer effective. Read More
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The National Banking System: A Brief History
We review the positive and normative effects of a minimum wage in various versions of a search-theoretic model of the labor market. Read More
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The National Banking System: Empirical Observations
This paper provides a summary of the main features of U.S. financial and banking data during the period of the National Banking System (1863–1914). Read More
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The National Banking System: The National Bank Note Puzzle
The era of the National Banking System (1863-1913) has been a puzzling one for monetary theorists and economic historians for well over a century. Read More
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Measuring Market Beliefs about the Fed Policy Rates
Since March of 2009, the Federal Open Market Committee (FOMC) has communicated that it will maintain the federal funds rate between a range of 0 to 1/4 percent and that it anticipates keeping rates within this range for an “extended period of time.” Read More
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Liquidity Creation without a Lender of Last Resort: Clearing House Loan Certificates in the Banking Panic of 1907
We document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907 using a new data set on clearing-house-loan-certificate issues in New York City. Read More
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Banking and Financial Crises in United States History: What Guidance Can History Offer Policymakers?
This paper assesses the validity of comparisons between the current financial crisis and past crises in the United States. Read More
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Economic Projections from the June FOMC Meeting
Four times a year, we get a glimpse of the Federal Open Market Committee’s (FOMC) forecasts for economic growth, unemployment, and inflation. Read More
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U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era
A look at foreign-exchange-market intervention by the Fed and the Treasury in the 1980s. Read More
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Market Expectations for Policy Rates
The recent financial turmoil in Europe has been associated with a general shift in market expectations about the future course of domestic and foreign monetary policy. Read More
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Monetary Policy in a World with Interest on Reserves
Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves. Read More
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Monetary Policy and an Extended Period of Time
The FOMC met on April 27 and 28 and, like at previous meetings, continued to assert that the “Committee will maintain the target range for the federal funds rate at 0 to ¼” for an “extended period.” Read More
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Economic Projections from the April FOMC Meeting
The economic projections of the Federal Open Market Committee (FOMC) were released along with the minutes of the meeting on April 27-28. Read More
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Recent Firming in the Federal Funds Market
Starting at the end of February 2010, the effective federal funds rate has seen a persistent firming in daily average rates, where firming refers to a higher rate, closer to the floor established by the interest rate on reserves. Read More
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Market Expectations for Monetary Policy in the U.S. and Europe
On March 16, the Federal Open Market Committee (FOMC) released a statement saying it would hold the Federal Funds target rate at 0 to 1/4 percent. Read More
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Euro Problems
Greece’s recent debt problem has many commentators wondering about the viability of the euro zone. Read More
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Economic Projections from the January FOMC Meeting
The economic projections of the Federal Open Market Committee (FOMC) are released in conjunction with the minutes of the meetings four times a year (January, April, June, and November). Read More
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The Beginnings of Normalcy
In last week’s prepared testimony for the House Committee on Financial Services, Federal Reserve Chairman Bernanke spoke extensively on the gradual exit of the Federal Reserve from many of its emergency liquidity programs. Read More
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Treasury Deposits and Excess Bank Reserves
An interesting development on the Federal Reserve’s balance sheet is a decline in excess bank reserves. Read More
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Conducting Monetary Policy When Interest Rates Are Near Zero
This Commentary explains concerns associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. Read More
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Economic Projections from the November FOMC Meeting
The FOMC’s economic projections were released in conjunction with the minutes of its November meeting. Read More
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The Effects of “Cash for Clunkers” on the Auto Industry
As of October 1, the “Cash for Clunkers” program has processed 670,557 reimbursements totaling $2.8 billion dollars. Read More
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With the Dollar Depreciating, Can Inflation Be Far Behind?
Unfortunately for forecasting buffs, other factors besides monetary spurts affect dollar exchange rates, and these things muddy the ability of exchange-rate changes to forecast future inflation patterns. Read More
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The Supplemental Financing Program
The winding down of the Treasury’s Supplemental Financing Program has some worried about the consequences for excess reserves on the Fed’s balance sheet and, by extension, inflation down the road. Read More
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The Policy Statement: A Slowdown of Asset Purchases
Today, the Fed announced that it would change the timing but not the quantity limit of agency mortgage-backed securities and agency debt. Read More
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The Check Is Dead! Long Live the Check! A Check 21 Update
Check 21 legislation has enabled the check clearing system to transform from paper to electronics, and much more rapidly than some had predicted. Read More
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The Changing Composition of the Fed's Balance Sheet
Since the onset of the crisis, the Fed has created and employed a new set of tools that involve the acquisition of financial assets and thus expand the asset side of the balance sheet. Read More
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Implementing Long-Term Security Purchases
During slowdowns in economic activity and periods of inflation, the optimal response is to lower the real rate. Traditionally, the Federal Reserve achieved this by reducing the target fed funds rate. Read More
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Economic Projections from the June FOMC Meeting
The FOMC’s economic projections were released in conjunction with the minutes of its June meeting. Data available to FOMC participants on June 23-24 showed some signs of stabilization after two quarters of substantial decreases. Read More
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Economic Projections from the April FOMC Meeting
The FOMC’s economic projections were released in conjunction with the minutes of its April meeting. The projections have not improved much since the last release of the Committee’s projections, in January 2009. Read More
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Replacing the Dollar with Special Drawing Rights - Will It Work This Time?
The head of China's central bank is calling for countries to replace the U.S. dollar as an international reserve currency with something called SDRs. Read More
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A Conference on Liquidity in Frictional Markets
This Policy Discussion Paper summarizes the papers that were presented at the Liquidity in Frictional Markets conference in November 2008. Read More
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New Policy Moves and the Term Asset-Backed Securities Loan Facility
At its recent meeting on March 18, the Federal Open Market Committee (FOMC) acknowledged that the economy is continuing to contract as ... Read More
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China, SDRs, and the Dollar
China wants a new international reserve currency that is “disconnected from economic conditions and sovereign interests of any single country.” It has recommended Special Drawing Rights for the job. Read More
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The Impact of Credit Easing So Far
While it is too early to judge the overall effectiveness of the Fed’s new credit-easing tools, conditions in many financial markets have improved to near-normal levels. However, liquidity strains remain. Read More
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Economic Projections from the January FOMC Meeting
The economic projections of the FOMC are released in conjunction with the meeting minutes four times a year (January, April, June, and October). Read More
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Credit Easing: A Policy for a Time of Financial Crises
In a lecture at the London School of Economics on January 13, 2009, Federal Reserve Chairman Ben Bernanke added some clarity to the Fed's policy response to the current financial crisis. Read More
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A Focus on Quantitative Easing
In an unprecedented move at its December 16 meeting, the FOMC decided to establish a target range for the federal funds rate of 0 to 0.25 percent. Read More
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The Ups and Downs of Current-Account Deficits
After reaching a record deficit of nearly $825 billion (annual rate) or 6½ percent of GDP in the fourth quarter of 2005, the U.S. current-account deficit has since narrowed. Read More
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Japan's Quantitative Easing Policy
The Federal Open Market Committee has lowered its federal funds rate target 4.5 percentage points since August 2007. Read More
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On the Threat of Counterfeiting
We study counterfeiting of currency in a search–theoretic model of monetary exchange. Read More
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Swap Lines
The current financial crisis is global. Banks in many countries are scrambling for liquidity—not just in their own currencies, but in dollars too. Read More
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Staying the Course
In a unanimous vote, the Federal Open Market Committee (FOMC) voted to keep its target fed funds rate steady at 2 percent. Read More
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Another Steady Rate Decision
On August 5, 2008, the Federal Open Market Committee (FOMC) voted to keep its target for the federal funds rate at 2%. Read More
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A New Role for the Exchange Stabilization Fund
Recently, the U.S. Treasury announced a new, temporary insurance program for U.S. money-market mutual funds. Read More
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Why Hasn't the United States Intervened?
The dollar’s precipitous fall since February 2002, particularly against the euro, has renewed interest in foreign-exchange-market intervention, that is, official purchases and sales of foreign exchange designed to influence dollar exchange rates. Read More
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Steady on Policy Rate, but Alert to Inflationary Pressures
The Federal Open Market Committee (FOMC) left its target for the federal funds rate unchanged at 2 percent on June 25. Read More
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Supplying Liquidity: The Tried and True and the New
On April 30, 2008, the Federal Open Market Committee (FOMC) voted to lower its target for the federal funds rate by 25 basis points to 2 percent. Read More
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What Interest Rate Spreads Can Tell Us about Mortgage Markets
The target for the federal funds rate has been slashed three full percentage points since September, from 5.25 to 2.25 percent. Read More
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Should the Fed Prop Up the Buck?
Congress mandates the Federal Reserve “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Read More
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Money and Competing Assets under Private Information
I study random-matching economies where at money coexists with real assets, and no restrictions are imposed on payment arrangements. Read More
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Stamp Scrip: Money People Paid to Use
Substitutes for government-issued money are produced and used from time to time even in countries like the United States. Read More
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Down Another Seventy-Five
On March 18, 2008, the Federal Open Market Committee (FOMC) voted to lower its target for the federal funds rate by 75 basis points to 2.25 percent. Read More
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The Great Moderation: Good Luck, Good Policy, or Less Oil Dependence?
Three explanations have been suggested for the moderation in real GDP and inflation that has occurred in industrialized countries since the 1980s: good luck, better monetary policy, and structural changes in the economy. Read More
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Another Move, but with Less Surprise
At its scheduled meeting yesterday, the Federal Open Market Committee (FOMC) lowered its target for the federal funds rate 50 basis points to 3 percent. Read More
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Providing Liquidity
On December 11, 2007, the Federal Open Market Committee (FOMC) voted to lower its target for the federal funds rate by 25 basis points to 4.25 percent. Read More
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Monetary Policy and the Dollar?s Depreciation
The dollar has been depreciating in foreign-exchange markets since February 2002. Read More
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The Funds Rate, Liquidity, and the Term Auction Facility
At its December 11 meeting, the Federal Open Market Committee (FOMC) voted to lower the target federal funds rate 25 basis points to 4.25 percent. Read More
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Dollar Depreciations and Inflation
The dollar has depreciated 24 percent on a broad trade-weighted basis since its peak in February 2002. Owen Humpage, Michael Shenk, Dollar Depreciations and Inflation, 12.12.07 Read More
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The 2007 Summer Workshop on Money, Banking, and Payments: An Overview
The 2007 Summer Workshop on Money, Banking, Payments and Finance met at the Federal Reserve Bank of Cleveland this summer, as we have over the past several years. Read More
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The National Banking System: The National Bank Note Puzzle
The era of the National Banking System (1863-1913) has been a puzzling one for monetary theorists and economic historians for well over a century. Read More
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The National Banking System: A Brief History
We review the positive and normative effects of a minimum wage in various versions of a search-theoretic model of the labor market. Read More
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A Brief History of Central Banks
A central bank is the term used to describe the authority responsible for policies that affect a country’s supply of money and credit. Read More
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The National Banking System: Empirical Observations
This paper provides a summary of the main features of U.S. financial and banking data during the period of the National Banking System (1863–1914). Read More
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Air Supply
Financial markets of all kinds have been unusually volatile in the past few months. Read More
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Living in a World of Contingency ...
“I can see ... only one safe rule for the historian: that he should recognize in the development of human destinies the play of the contingent and the unforeseen.” Read More
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Counterfeiting as Private Money in Mechanism Design
We describe counterfeiting activity as the issuance of private money, one which is difficult to monitor. Read More
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The Well-Anticipated Rate Cut
The Federal Open Market Committee voted today to lower the fed funds target 25 basis points to 4.50 percent. Read More
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Reserve Market Rates and Discount Window Lending
At its September 18 meeting, the Federal Open Market Committee (FOMC) voted to lower the target federal funds rate 50 basis points to 4.75 percent. Read More
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Money and Capital
We revisit classic questions concerning the effects of money on investment in a new framework: a two-sector model where some trade occurs in centralized and some in decentralized markets, as in recent monetary theory, but extended to include capital. Read More
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Are Consumers Cashing Out?
The information age has led to many new forms of payment, including credit cards, debit cards, and online banking. Read More
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A Model of Money and Credit, with Application to the Credit Card Debt Puzzle
Many individuals simultaneously have significant credit card debt and money in the bank. Read More
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The Long-Anticipated Rate Cut
The Federal Open Market Committee voted unanimously today to lower the fed funds target 50 basis points to 4.75 percent. Read More
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Peak Oil
When will the world’s production of oil peak, and what will the economic consequences be? Read More
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A Step Towards Neutral
The Federal Open Market Committee kept rates unchanged at the August 7 meeting; the federal funds rate has remained at 5.25 percent since July 2006. Read More
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The Dollar's Depreciation and Inflation
Factors underlying the dollar’s depreciation may be changing in a manner that could put upward pressure on U.S. prices, should they continue. Read More
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Sovereign Wealth Funds
The flip side of our current account deficits these past 25 years has been an inflow of foreign savings. Read More
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Monetary Policy: What's in a Few Words?
The Federal Open Market Committee (FOMC) left the target level of the federal funds rate unchanged at 5.25 percent this afternoon. Read More
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Is Foreign Exchange Intervention a Good Idea?
According to a recent article in the Financial Times, U.S. Senate leaders are considering legislation to mandate that the U.S. Treasury intervene in foreign-exchange markets when currencies become fundamentally misaligned. Read More
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Monetary Policy: Holding Steady
On May 30, the Federal Reserve Open Market Committee (FOMC) released the minutes from its May 9 meeting. Read More
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Global Risks to U.S. Monetary Policy
We recently invited four international economists to the Federal Reserve Bank of Cleveland to discuss global developments and to help us identify and understand the risks that these developments present for U.S. monetary policy. Read More
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The More Things Change, The More They Stay The Same
The federal funds rate target has not budged since the Federal Open Market Committee set it at 5¼ percent in June 2006. Read More
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Monetary Policy: No Surprise Here
As widely anticipated, the Federal Open Market Committee (FOMC) left the target level of the federal funds rate unchanged at 5.25 percent this afternoon. Read More
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Monetary Policy in the United States, the Euro Area, and Japan
The conduct of monetary policy typically depends on specific economic conditions within a country such as its inflation, its level of production, and its level of employment. Read More
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Deficits and the Dollar
Contrary to what many people seem to believe, a straightforward relationship does not exist between a nation’s current-account balance and movements in its trade-weighted exchange rate. Read More
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Asian Reserves
Since the early 1990s, developing Asian countries have greatly increased their holdings of foreign-exchange reserves. Read More
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Monetary Policy: A Statement of Confidence?
Yesterday, the Federal Open Market Committee (FOMC) left the target level of the federal funds rate unchanged at 5.25 percent, as markets had expected. Read More
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Liquidity
Lately, I’ve been hearing people say that the world is awash in liquidity. Read More
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A Tale of Two Houses
For those of us waiting patiently to see what is going on in the housing market, January’s numbers offer more of a headache than a relief. Read More
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2006 Summer Workshop on Money, Banking, and Payments? An Overview
This Policy Discussion Paper summarizes the papers presented at the 2006 Summer Workshop on Money, Banking, and Payments. Read More
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Will the Euro Supplant the Dollar?
The U.S. dollar has been the world’s key international currency since at least the end of World War II. Read More
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The January 31 FOMC Meeting
On January 31, 2006, the Federal Open Market Committee voted to leave the federal funds target rate at 5.25 percent for the fifth consecutive time. Read More
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Monetary Policy Stays Put
On January 31, 2006, the Federal Open Market Committee voted to leave the federal funds target rate at 5.25 percent for the fifth consecutive time. Read More
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Worry is interest paid on trouble before it falls due
Although still in the throes of a major housing market correction, the U.S. economy ended 2006 in much better shape than many analysts had expected. Read More
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Monetary Aggregates
According to Milton Friedman’s famous aphorism, “inflation is always and everywhere a monetary phenomenon.” Read More
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Interest Rates, Yields, Outstanding Debt, and Consumer Attitudes
The yield curve remained inverted in December. Read More
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Private Money in our Past, Present, and Future
The government isn’t the only entity allowed to issue money. Read More
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Monetary Policy
At its October 25 meeting, the Federal Open Market Committee left the target federal funds rate unchanged at 5.25% for the third consecutive time. Likewise, the Board of Governors left the primary credit rate at 6.25%. Read More
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The Economy in Perspective
Another year heads into the barn, bows out, comes full circle, folds its tent, fades into the sunset. Any way you say it, 2006 will soon be history. Everyone’s view of the year is colored by their values, expectations, and vantage point. Read More
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The Currency Composition of International Reserves
The U.S. dollar is the world’s key international reserve currency. Many countries—particularly developing and oil-exporting nations—have amassed huge foreign-exchange portfolios. Read More
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Money and Financial Markets
We know that correlation does not necessarily imply causation. Read More
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Option Prices, Exchange Market Intervention, and the Higher Moment Expectations Channel: A User’s Guide
This paper investigates how market structure affects efficiency and several dimensions of liquidity in an asset market. Read More
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National Bank Notes and Silver Certificates
From 1883 to 1892, the circulation of national bank notes in the United States fell nearly 50 percent. Read More
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Central Bank Independence and Inflation: A Note
We document increased central bank independence within the set of industrialized nations. Read More
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Milton Friedman, Teacher, 1912–2006
Nobel laureate Milton Friedman, who died on November 16, 2006, changed the course of modern central banking. Read More
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Jump Starting GARCH: Pricing and Hedging Options with Jumps in Returns and Volatilities
This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset returns and volatilities. Read More
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The Economy in Perspective
Inflation—the rate at which the purchasing power of money declines—is a big deal. In his 1931 Essays in Persuasion, John Maynard Keynes wrote, “The best way to destroy the capitalist system is to debauch the currency.” Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) left the target federal funds rate at 5.25% on October 25, the third consecutive meeting with no change. Read More
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Money and Financial Markets
Although they have trended up from their 2003 trough, long-term interest rates remain low by historical standards. Read More
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Monetary Policy
The Federal Open Market Committee left the target federal funds rate unchanged at 5.25% on September 20, the second meeting in a row with no change. Read More
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The Economy in Perspective
I ran into Walter Badgett in the frozen food section of the grocery store. I’ve known Wally nearly all my life—we grew up in the same neighborhood. We were close back then but we’d lost touch over time, like so many friends. Read More
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Money and Financial Markets
Interest rates have dropped slightly over the past month, but the yield curve continues its inversion (short rates higher than long ones), with a curious peak at the six-month maturity. Read More
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Monetary Policy
On August 8, the Federal Open Market Committee (FOMC) voted to leave the federal funds rate at 5.25%, the first pause since June 2004. Read More
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The Economy in Perspective
I didn’t think very much about China or India when I was growing up. I knew they were there, of course, on the other side of the globe—large countries with very large populations. Read More
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Money and Financial Markets
Throughout the summer, the 10-year Treasury note yield has been below that of the one-year Treasury bill, implying an inverted yield curve in that range of maturities. Read More
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Central Bank Independence: The Key to Price Stability?
Low inflation over long periods is the sign of an effective central bank. Read More
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Monetary Policy
Markets suggest that we may be nearing the first pause after federal funds rate increases of 25 points (bp) at each of 17 consecutive FOMC meetings. Read More
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The Economy in Perspective
By the time you read this, the August 8 FOMC meeting will be history, but as I write, the event looms ahead. Read More
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Taylor Rules and Monetary Policy
Monetary policy is often described as a rule or strategy for changing the federal funds rate. Read More
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The Toledo Metropolitan Area
Toledo, Ohio, had 331,000 jobs in 2005, which made it the Fourth District’s seventh-largest metropolitan statistical area in terms of employment. Read More
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Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy
This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw, and Reis (2005) sticky information model that incorporates endogenous inattention. Read More
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Money and Capital as Competing Media of Exchange
We construct a model in which capital competes with fiat money as a medium of exchange, and establish conditions on fundamentals under which fiat money can be both valued and socially beneficial. Read More
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Bretton Woods and the U.S. Decision to Intervene in the Foreign-Exchange Market, 1957-1962
The deterioration in the U.S. balance of payments after 1957 and an accelerating loss of gold reserves prompted U.S. monetary authorities to undertake foreign-exchange-market interventions beginning in 1961. Read More
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Central Bank Credibility
Major League Baseball Commissioner Bud Selig announced he would crack down on steroid use in baseball, hoping to stop players from doping. Read More
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The Economy in Perspective
People often ask me to recommend books about economics but now, with the onset of summer, I am getting requests for “beach books” on the dismal science. Read More
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Monetary Policy
On June 29, the Federal Open Market Committee (FOMC) raised its target for the federal funds rate 25 basis points (bp), taking it to 5.25%. Read More
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Money and Financial Markets
Although long-term interest rates have trended upward from their 2003 trough, they remain low by historical standards. Some view this as the consequence of a savings glut in developing countries, especially in Asia. Read More
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Search in Asset Markets
We investigate how trading frictions in asset markets affect portfolio choices, asset prices and efficiency. Read More
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Economic Conditions and Monetary Policy
In order to set monetary policy appropriately, policymakers need to assess current economic conditions, understand how the economy got where it is, and have a good idea of where it is heading. Read More
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Monetary Policy
On May 10, the Federal Open Market Committee (FOMC) voted to raise the intended federal funds rate 25 basis points (bp) to 5.00%. Read More
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The Economy in Perspective
To better understand today’s economic and policy environment, go back about 10 years. The stock market was running in high gear, but some market observers began to predict a major market correction, especially in the tech-sector-rich NASDAQ. Read More
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Money and Financial Markets
The inversion of the yield curve observed earlier this year has nearly disappeared. Read More
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FOMC Communications and the Predictability of Near-Term Policy Decisions
In February 1994, the FOMC began a new era in transparency, gradually building a communications apparatus that conveys information about the Committee’s decisions and expectations. Read More
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The Economy in Perspective
Last Saturday morning, when I asked my teenage daughter what her plans were for the evening, she told me she wasn’t sure. Read More
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Monetary Policy
Since the Federal Open Market Committee (FOMC) increased the intended federal funds rate to 4.75% on March 28, 2006, market participants’ views on expected course of policy have shifted. Read More
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Money and Financial Markets
Market participants now place nearly even probabilities on a pause and a 25 bp funds rate hike in June. Federal funds futures foretell a further 50 bp increase in the funds rate by the end of October. Read More
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Monetary Policy in an Interdependent World
While central bankers must focus on delivering price stability and other mandates in their own countries, they must also monitor international developments closely because national trade and financial markets have become increasingly interconnected. Read More
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Central Bank Independence
New Zealand has succeeded dramatically in lowering inflation. Read More
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The Economy in Perspective
In the February 2005 Monetary Policy Report, FOMC projected that real GDP would increase at a rate of 3%, inflation as measured by the core PCE would increase at a rate of roughly 1.75% percent, and unemployment rate would register 5.12% in Q4. Read More
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Monetary Policy
On March 28, the Federal Open Market Committee (FOMC) voted to raise the intended federal funds rate 25 basis points (bp) to 4.75%. Read More
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Japan Ends Quantitative Easing
The Japanese economy may finally be awakening from its big sleep. Read More
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The Economy in Perspective
Participants in the federal funds futures market expect the Federal Open Market Committee to raise the funds rate target by 25 basis points at each of the next two policy meetings. Read More
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Monetary Policy
On January 31, the Federal Open Market Committee (FOMC) voted to raise the target level of the federal funds rate 25 basis points (bp) to 4.50%. Read More
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The Current Account and Dollar Depreciation
In 2005, the U.S. current account deficit will reach an estimated $783 billion or about 6.3% of GDP. Globally, current account balances must sum to zero. Read More
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Money and Financial Markets
Long-term interest rates remain low by historical standards, posing something of a conundrum. Read More
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2005 Summer Workshop on Money, Banking and Payments: An Overview
This PDP summarizes the papers presented at the 2005 Summer Workshop on Money, Banking, and Payments at the Cleveland Fed. Read More
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Economic Forecasts and Monetary Policy
Economic forecasts are essential tools for monetary policymakers. Read More
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Monetary Policy
On January 31, 2006, in its last meeting under Chairman Alan Greenspan, the Federal Open Market Committee raised the target federal funds rate by 25 basis points (bp) to 4.50%. Read More
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The Economy in Perspective
Conventional wisdom—in other words, the central tendency of professional forecasters—holds that 2006 and 2007 will be decent years for the U.S. economy. Read More
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Dark Matter and the International Payments Problem
A 23-year string of current account deficits has left foreigners holding substantial—and still growing—financial claims against the U.S. Read More
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Money and Financial Markets
The recent flattening of the yield curve has generated significant controversy. Read More
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The Economics of Payments
In this paper we provide a survey of the payment literature in a unified framework. Read More
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Monetary Policy
On December 13, the Federal Open Market Committee (FOMC) raised the intended federal funds rate 25 basis points (bp) to 4.25%. Read More
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The Economy in Perspective
For reasons that have never been clear, economists are invariably asked to give outlook talks at the beginning of each year... Read More
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Money and Financial Markets
Implied yields on Eurodollar futures show that market participants expect a pause in policy tightening in 2006. Read More
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Globalization and Imbalances in Historical Perspective
Global imbalances associated with the U.S. current account deficit have given rise to speculation about the nature of the impending adjustment. Read More
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On the Recognizability of Money
This paper develops a model of currency circulation under asymmetric information. Read More
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The Interest Rate Conundrum and the Savings Glut
Two of the brightest blips on U.S. policymakers’ radar screens are the low level of U.S. long-term interest rates and our large, expanding current account deficit. Global saving and investment patterns go a long way toward explaining both of them. Read More
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The Economy in Perspective
Although some people worried U.S. economy would stumble at the end of this year and limp into next, it appears to be running in fine form. Income and output actually accelerated last quarter, despite soaring energy prices and storm damage. Read More
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Monetary Policy
At its November 1 meeting, the Federal Open Market Committee (FOMC) raised its federal funds rate target from 3.75% to 4%, which is less than 2 percentage points above the core inflation rate of personal consumption expenditures for the past year. Read More
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Swedish Intervention and the Krona Float, 1993-2002
Using a set of standard success criteria, we show that Riksbank foreign-exchange interventions between 1993 and 2002 lacked forecast value. Read More
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Money and Financial Markets
Despite 12 straight increases in the federal funds rate, long-term interest rates remain low by historical standards. For more than three years, the economy has been expanding at an average annual rate of 3.5%. Read More
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Some Benefits of Cyclical Monetary Policy
In this paper, we present a simple random-matching model in which different seasons translate into different propensities to consume and produce. Read More
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Considerable Period of Time: The Case of Signaling Future Policy
There has been a remarkable increase in FOMC communication over the last decade. Read More
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Monetary Policy
With the November 1 increase, the Federal Open Market Committee has increased the target federal funds rate by 25 basis points for 12 meetings in a row, bringing the rate from 1.00% in June 2004 to 4.00%. Read More
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The Economy in Perspective
This essay is decidedly not about Ben Bernanke, the economist nominated by President Bush to become the next chairman of the Federal Reserve Board. It’s not that Mr. Bernanke doesn’t deserve the attention. Read More
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Money and Financial Markets
The federal funds rate directly affects only the reserve desks of banks and a few brokers and dealers; however, as a transmitter of Federal Reserve policy, it influences other rates of wider concern. Read More
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Oil Prices, Monetary Policy, and Counterfactual Experiments
Recessions are associated with both rising oil prices and increases in the federal funds rate. Read More
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The Tale of Gresham’s Law
Gresham’s law, which says that bad money tends to drive good money out of circulation, may account for many nations’ episodes of money troubles, as far back as ancient Athens. Read More
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The Economy in Perspective
For 10 years, inflation as measured by the Consumer Price Index has ranged between 1% and 3 3/4%, and inflation as measured by the CPI excluding food and energy (core inflation) has moved in a very similar zone, bounded by 1% and 3%. Read More
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Monetary Policy
On September 20, the Federal Open Market Committee (FOMC) increased the intended federal funds rate 25 basis points (bp) to 3.75%, the eleventh such increase since the current round of tightening began in late June 2004. Read More
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Money and Financial Markets
Implied yields from euro-dollar futures fell in August and September, suggesting that market participants expect the current round of tightening may end or moderate significantly in 2006. Read More
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When Is Checkout Time?
The death of paper checks has been predicted since the 1960s, but only recently has their use begun to decline. Read More
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The Economy in Perspective
The Tuesday, August 30 New York Times carried the front page headline, “Hurricane Slams into Gulf Coast…New Orleans Escapes a Direct Hit.” We now know that the optimistic reports were premature. Read More
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Monetary Policy
At its August 9 meeting, the Federal Open Market Committee (FOMC) raised its federal funds rate target from 3.25% to 3.50%. This widely anticipated increase of 25 basis points (bp) was the tenth in a row since June 2004. Read More
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Taylor Rules and Communication
The FOMC statement continues to assert that “monetary policy remains accommodative,” but it is difficult to judge whether or not this is the case. One approach is to calculate what the funds rate would have been in the past under similar conditions. Read More
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Foreign Central Banks
The Federal Reserve recently raised its interest rate target by another 25 basis points (bp) and the Bank of England lowered its rate target by 25 bp. Read More
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The Economy in Perspective
The U.S. economy has come a long way since the 2001 recession. Despite terrorist attacks, an ongoing war, and a series of energy price shocks, economic activity has steadily advanced for four years and shows no sign of abating. Read More
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Monetary Policy
After each of its meetings, the Federal Open Market Committee (FOMC) releases a statement to explain its decision on the federal funds rate—a benchmark for all short-term interest rates. Read More
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Foreign Central Banks
The Bank of England maintained a 4.75% repo rate at its early July meeting, although only by the slimmest of margins: Four of the nine members wanted to cut the rate in anticipation of a “softer [growth] outlook going forward.” Read More
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Money and Financial Markets
In a recent speech, Federal Reserve Board Governor Donald Kohn noted that the Federal Reserve pays “a lot of attention to financial market prices in the formulation of monetary policy.” Read More
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The Economy in Perspective
The Federal Open Market Committee increased its federal funds rate target by 25 basis points, to 3.25%, at its June 30 meeting. Read More
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Monetary Policy
On June 30, the Federal Open Market Committee (FOMC) announced that the target federal funds rate increased by 25 basis points to 3.25, the ninth consecutive increase. Read More
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Recovering Market Expectations of FOMC Rate Changes with Options on Federal Funds Futures
This paper demonstrates how options on federal funds futures, which began trading in March 2003, can be used to recover the implied probability density function (PDF) for future Federal Open Market Committee (FOMC) interest rate outcomes. Read More
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Foreign Central Banks
As expected, the Federal Open Market Committee raised its overnight federal funds rate target from 3% to 3.25% at the end of June. The Bank of England’s repo rate, maintained at 4.75% in early June, has been unchanged since August of last year. Read More
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Money and Financial Markets
Although the Federal Reserve sets the federal funds rate and the discount rate, the ultimate impact on the economy depends on what happens to other interest rates, which policy may influence but not control. Read More
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The European Union
The recent French and Dutch votes to reject the European Union’s constitution have raised doubts about the sustainability of Europe’s single currency, the euro. Read More
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The Economy in Perspective
The Second Law helps explain why hot frying pans cool off after removed from the heat source, and why ice cubes melt in a glass of tap water. Left to its own devices, tap water will not store up energy and transform itself into ice cubes. Read More
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Monetary Policy
At its May 3 meeting, the Federal Open Market Committee (FOMC) raised its federal funds rate target from 2.75% to 3%—about 1 percentage point above the core inflation rate of personal consumption expenditures over the past year. Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since the Federal Reserve raised its funds rate target to 3% on May 3. Read More
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Money and Financial Markets
The secular decline in long-term rates that began in 1982 resulted primarily from a decline in the inflation expectations associated with a sustained disinflation. Read More
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Why Policymakers Might Care About Stock Market Bubbles
This Commentary makes a case for Fed action in the event of a stock market bubble. Read More
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Monetary Policy
Since the current round of monetary policy tightening began in late June 2004, the Federal Open Market Committee has increased the federal funds rate a total of 2.00%. Read More
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The Economy in Perspective
The monetary policy situation now facing the FOMC is a textbook classic of advanced macroeconomics courses: How should the monetary authority respond to an adverse energy shock? Read More
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The Power of Price Stability
The economy has been expanding for the past few years, but concerns are growing over the pressures placed on it by fiscal deficits, current account imbalances, and energy shocks. Read More
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Money and Financial Markets
Before January 9, 2003, the Federal Reserve discount rate was set lower than the FOMC’s federal funds rate target for open market operations. The Reserve Banks had to use administrative means to discourage borrowing at this attractive rate. Read More
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Foreign Central Banks
Among the four major central banks, only the Federal Reserve has changed a policy setting recently. It raised the target for the overnight federal funds rate another 25 basis points (bp) to 3.00%. This was expected. Read More
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Expectations, Communications, and Monetary Policy
Since early 1994, the FOMC has taken many steps toward increasing the amount of information it conveys to the public about its actions. Read More
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Monetary Policy
Growth in the sweep-adjusted monetary base (total currency in circulation plus total reserves plus vault cash of depository institutions not applied to reserve requirements) moderated in January. Read More
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The Economy in Perspective
This edition of The Economy in Perspective contains both a crossword puzzle and its answers. Read More
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Foreign Central Banks
Of the four major central banks, only the Federal Reserve has changed its policy setting recently, raising its target for the overnight federal funds rate by another 25 basis points to 2.75%. Read More
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Dollar Depreciation and Inflation
Since February 2002, the U.S. dollar has depreciated nearly 16% on average against currencies of our most important trading partners, with surprisingly little impact on prices of most traded goods. Oil accounts for most of change in import prices. Read More
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Bargaining and the Value of Money
Search models of monetary exchange have typically relied on Nash (1950) bargaining or strategic games that yield an equivalent outcome to determine the terms of trade. Read More
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The Economy in Perspective
The vexed question of the nation’s deficits, both actual and projected, has aroused a cacophony of opinions. Despite the tumult, however, there is an element of arithmetic that must be respected. Read More
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Monetary Policy
On February 2, the Federal Open Market Committee (FOMC) raised the intended federal funds rate 25 basis points (bp) to 2.5%, the sixth such increase since the current round of tightening began in late June 2004. Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since the last Federal Reserve action. Japan’s overnight interbank rate has been zero for three years, reflecting the Bank of Japan’s anti-deflation policy of quantitative easing. Read More
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Money and Financial Markets
In his February 16 testimony before Congress, Federal Reserve Chairman Greenspan discussed yield curve movements. Changes at the long end of the nominal yield curve can be attributed: changes in real rates and changes in inflation expectations. Read More
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Japan's Economy
In the fourth quarter of 2004, Japan’s real GDP fell at an annualized rate of 0.5%. Following the downward revisions to second- and third-quarter growth rates, 2004:IVQ was the third straight quarter in which real GDP contracted. Read More
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A Perspective on Monetary Policy
This Commentary contains an insider’s view of the decision making process followed by the monetary policymakers of the FOMC. Read More
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The Economy in Perspective
The remarkable aspect of current economic conditions is that they are so unremarkable. Real GDP expanded at a 3.7% rate during last four quarters, unemployment rate stands at 5.2%, and core CPI inflation registered 2.2% during the last year. Read More
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Monetary Policy
Growth in the sweep-adjusted monetary base (total currency in circulation plus total reserves plus vault cash of depository institutions not applied to reserve requirements) has been fairly constant for a couple of years. Read More
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Foreign Central Banks
On February 2, the Federal Reserve’s Federal Open Market Committee again raised its target for the overnight interbank (federal funds) rate by 25 basis points, bringing the target to 2.50%. Read More
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Recent Developments in Monetary Economics: A Summary of the 2004 Workshop on Money, Banking, and Payments
We provide a summary and an overview of the papers presented at the Federal Reserve Bank of Cleveland's 2004 Workshop on Money, Banking, and Payments. Read More
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Monetary Policy
On December 14, the Federal Open Market Committee raised its target for the federal funds rate by 25 basis points to 2.25%, its fifth consecutive upward move. Separately, the Federal Reserve’s Board of Governors raised the discount rate to 3.25%. Read More
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The Economy in Perspective
Many analysts believe that the U.S. economy overall will perform much the same in 2005 as it did in 2004. They expect that real GDP will grow in a range centered on 3.5 percent and that core CPI inflation will increase at roughly 2 percent. Read More
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Money and Financial Markets
The federal funds rate gets attention, not because everyone borrows or lends at that rate (only banks do), but because its movement affects other rates at which people do borrow and lend. Read More
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Foreign Central Banks
The Federal Reserve’s Federal Open Market Committee continued its series of policy rate increases at its December 14 meeting, bringing the target for the overnight federal funds rate up 25 basis points to 2.25%. Read More
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Asset Prices, Nominal Rigidities, and Monetary Policy
Should monetary policy respond to asset prices? This paper analyzes this question from the vantage point of equilibrium determinacy. Read More
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Monetary Policy, Endogenous Inattention, and the Volatility Trade-off
This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. Read More
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Monetary Policy
At its November 10 meeting, the Federal Open Market Committee (FOMC) raised its target for the federal funds rate from 1.75% to 2%—just above the inflation rate for core personal consumption expenditures (PCE) over the past year. Read More
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Monetary Policy and the Dollar’s Decline
Third-quarter GDP growth in the euro area and Japan came in lower than analysts had anticipated. Read More
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The Economy in Perspective
Appreciating the dollar…The U.S. dollar has been in the news often lately, and some financial journalists have announced that it is finally getting its comeuppance. Read More
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Foreign Central Banks
At its November 10 meeting, the Federal Open Market Committee (FOMC) continued its series of policy rate increases with another 25 basis point (bp) rise in the target for the overnight uncollateralized interbank loan (federal funds) rate. Read More
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Money and Financial Markets
In recent months, yields on 10-year Treasury inflation-protected securities (TIPS) have fallen more than yields on nominal 10-year Treasury notes. Read More
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Thinking about Monetary Policy without Money: A Review of Three Books:
This paper reviews three recent books. Two books, one by Carl Walsh and one by Michael Woodford, focus on the development of monetary theory. Read More
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Monetary Policy
At its most recent meeting, held on September 21, the Federal Open Market Committee (FOMC) raised the target federal funds rate 25 basis points (bp) to 1.75%, the third such increase since the record low of 1.00% was reached in June 2003. Read More
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The Economy in Perspective
Off we go (into the wild blue or red yonder)…We write this page in complete ignorance of the election results; ballots will not even be cast for another few days. Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since the Federal Reserve’s Federal Open Market Committee adopted a 1.75% target for the federal funds rate on September 21. Read More
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The Fate of One Dollar Coins in the U.S.
The United States has introduced two one-dollar coins in the past 25 years, both of which have not circulated widely. Read More
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Friedman Meets Hosios: Efficiency in Search Models of Money
In this paper the authors study the inefficiencies of the monetary equilibrium and optimal monetary policies in a search economy. Read More
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The Economy in Perspective
Normalization, of a sort…The current expansion, which began in November 2001, followed a mild eight-month contraction (since 1945, the average length of contractions has been 10 months). Read More
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Monetary Policy
Growth in the sweep-adjusted monetary base (total currency in circulation plus total reserves including depository institutions’ vault cash) has increased its annualized year-to-date growth rate to 6.3% in 2004. Read More
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Oil Prices, Monetary Policy, and Recessions
Oil price increases seem to have accompanied every recession since 1971. Read More
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Money and Financial Markets
On September 21, the Federal Open Market Committee (FOMC) raised the target federal funds rate to 1.75%, 25 basis points (bp) higher than the target established on August 10. Read More
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Foreign Central Banks
The Federal Reserve, alone among the major central banks, changed its policy rate during the past month, raising it another 25 basis points to 1.75%. Read More
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Monetary Policy
On August 10, the Federal Open Market Committee raised the federal funds rate target to 1.50%, 25 basis points (bp) higher than the target established on June 30. Read More
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The Economy in Perspective
As we discuss elsewhere in this issue, nonfarm payrolls increased by 144,000 jobs in August, and employment gains were revised upward in both June and July. Read More
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Money and Financial Markets
Financial markets offer one way to gauge the degree of accommodation in monetary policy (and perhaps to judge whether it is removed at “a pace that is likely to be measured” in the future). Read More
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Foreign Central Banks
None of the major central banks has changed its policy setting since the Federal Open Market Committee raised its target to 1.5% on August 10. Read More
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When Is a Rate Hike Not Tighter Policy?
Now that the Fed has started to bump up the federal funds rate, the explanation often heard for it is that the Fed is “tightening” monetary policy to keep economic growth in check. Read More
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The Economy in Perspective
U.S. employment grew by only 32,000 jobs last month, dramatically fewer than the 240,000 jobs the pros had predicted. Read More
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Monetary Policy
On June 30, the Federal Open Market Committee raised its federal funds rate target from 1% to 1 1/4%, initiating an anticipated series of rate hikes to return policy to a neutral stance. Read More
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Money and Financial Markets
An inflation-adjusted overnight interest rate near or below zero is not thought to be sustainable without ultimately inducing inflationary pressures. Read More
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Foreign Central Banks
The Federal Open Market Committee increased its federal funds rate target by 25 basis points to 1.25% on June 30, “with underlying inflation still expected to be relatively low.” Read More
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Monetary Policy
The intended federal funds rate has held constant at 1% for nearly a year. Read More
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The Economy in Perspective
Despite the Federal Open Market Committee’s June 30 decision to increase its federal funds rate target by 25 basis points, some people still wonder whether or not the Committee is “behind the curve.” Read More
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Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium
We compare three market structures for monetary economies: bargaining (search equilibrium); price taking (competitive equilibrium); and price posting (competitive search equilibrium). Read More
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Money and Financial Markets
The May 4 statement of the Federal Open Market Committee noted the “accommodative stance of monetary policy.” Read More
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Foreign Central Banks
Central banks continue to be viewed in the context of a presumed global economic recovery—led partly by China’s strong growth—and of upward price pressures, some created directly or indirectly by petroleum markets. Read More
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The Economy in Perspective
Come gather ’round people wherever you roam Recognize that inflation around you has grown Read More
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Monetary Policy
Nonfarm payroll employment rose 248,000 in May. Read More
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Treasury Inflation-Indexed Securities
Today’s monetary policy decisions focus on future inflation prospects. Read More
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Interest Rates, Yield Curves, and the Monetary Regime
The yield curve has a wealth of information about future interest rates and economic conditions. Read More
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Foreign Central Banks
The Monetary Policy Committee raised the Bank of England’s policy rate 25 basis points to 4.25% on May 6, “to keep CPI inflation on track to meet the 2% target in the medium term.” Read More
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Emerging Market Debt
In late March, expectations about the future course of U.S. monetary policy began to change. Read More
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A Perspective on Monetary Policy
Sandra Pianalto is the president and chief executive officer of the Federal Reserve Bank of Cleveland. Read More
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Monetary Policy
As of this writing, the target federal funds rate remains at 1%, where it has been since June 2003. Read More
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The Economy in Perspective
On the policy trail…The Federal Open Market Committee has maintained its federal funds rate target at 1% for almost a full year, by most reckonings a considerable length of time. Read More
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Japan’s Economy
March data reflect seemingly broadbased increases in retail prices. The Consumer Price Index (CPI) rose an additional 6.0% in March, significantly exceeding its 12-month growth rate of 1.7%. Read More
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Employment Conditions in the OECD
Unemployment rates fell and employment rose in most nations of the Organisation for Economic Co-operation and Development (OECD) from 1997 to 2001. Read More
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Foreign Central Banks
Public discussion of expected monetary tightening has begun to spread around the globe, although the four major central banks left their policy settings unchanged in April. Read More
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Money and Financial Markets
One reason the federal funds rate gets such intense scrutiny, even though few people directly borrow and lend at that rate, is that Federal Reserve policy affects other rates as well. Read More
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Monetary Policy
As market participants had expected, the Federal Open Market Committee left the federal funds rate target unchanged at its March 16 meeting. Read More
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The Economy in Perspective
A day in the life… “You’ve changed.” “Pardon me?” “You’ve changed,” she said. “You’re not the economy I married.” Read More
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Dollar Depreciation and Inflation
Since its most recent peak on February 27, 2002, the dollar has depreciated more than 12% on a trade-weighted average basis against the currencies of our major trading partners. Read More
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Money and Financial Markets
Market participants’ inference that the FOMC has leeway to be patient is consistently reflected throughout the term structure of interest rates. Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since early February. Read More
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A National Voice, a Regional View
Sandra Pianalto, president and chief executive officer of the Federal Reserve Bank of Cleveland, discusses the way the Federal Reserve System ensures that different regions of the country are represented in making monetary policy. Read More
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Monetary Policy
On February 11 and 12, Federal Reserve Chairman Alan Greenspan delivered his semiannual Monetary Policy Report to Congress. Read More
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The Economy in Perspective
According to the National Bureau of Economic Research, an independent organization that dates U.S. business cycle peaks and troughs, economic activity peaked in March 2001 and declined until November 2001. Read More
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A Model of (the Threat of) Counterfeiting
A simple matching-model of money with the potential for counterfeiting is constructed. Read More
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Money and Financial Markets
After declining strongly from late 2000 to mid-2003, interest rates on three- and six-month Treasury bills have remained nearly constant at values close to the federal funds rate. Read More
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Foreign Central Banks
The Bank of England’s Monetary Policy Committee raised its repo rate to 4% in early February, the second increase of 25 basis points in three months. Read More
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On the Rotation of the Earth, Drunken Sailors, and Exchange Rate Policy
A growing number of observers seem to believe that official foreign exchange intervention offers a useful tool for managing the dollar’s descent. Read More
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The Economy in Perspective
At the conclusion of its January 28 meeting, the Federal Open Market Committee issued a press release stating that it “could be patient in removing its accommodative policy stance.” Read More
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Monetary Policy
Growth in the sweep-adjusted monetary base (total currency in circulation plus total reserves including depository institutions’ vault cash) has been fairly constant over the past couple of years. Read More
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Island Money
On a small group of islands in the South Pacific, the people use a “money” so astonishing it often gets mentioned in classroom discussions on the subject. Read More
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Money and Financial Markets
At its January 27–28 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 1% and the primary credit rate at 2%. Read More
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Foreign Central Banks
The Bank of Japan, alone among the four major central banks, adjusted its monetary policy setting recently. Read More
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The Current Account and the Dollar
The current account deficit narrowed in 2003:IIIQ, the first significant drop since the dollar began its recent decline. Read More
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The Trime
You might not have heard of the trime, the tiny 3-cent silver coin minted in the United States from 1851 to 1873, but it may have played a big role in shaping the kind of money you carry around in your wallet today. Read More
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The Economy in Perspective
Dude, Where’s My Economy?…Objectively speaking, the U.S. economy seems to stand on solid ground. Read More
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Monetary Policy
At its December 9 meeting, the Federal Open Market Committee (FOMC) decided to keep its target federal funds rate at 1%. Read More
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Foreign Central Banks
The four major central banks left their policy targets unchanged as the British pound, the euro, and the yen continued to appreciate relative to the U.S. dollar. Read More
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Money and Financial Markets
Much of the current discussion about monetary policy focuses on the prospects for inflation—what do financial market indicators say? Read More
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Investment and Interest Rate Policy: A Discrete Time Analysis
This paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy. Read More
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Comments on Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability
Benhabib, Schmitt-Grohe, and Uribe (2003) argue that if you relied solely on local analysis you would be led to believe that aggressive, backward-looking interest rate rules are sufficient for determinacy. Read More
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The Great Depression and the Friedman-Schwartz Hypothesis
We evaluate the Friedman-Schwartz hypothesis that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. Read More
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Monetary Policy
It came as no surprise when the Federal Open Market Committee announced after its October meeting that it had voted to leave the federal funds objective unchanged. Read More
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The Economy in Perspective
Now on screen: X-Pansion, a new-age thriller, rated PG-13 for mild violence and economic jargon, running time of three years and then some… Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since the Bank of England raised its rate on November 6. Read More
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Money and Financial Markets
The recent financial environment, in which the overnight real interest rate has been near zero, was initially associated with a general decline in interest rates across all maturities. Read More
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Government Intervention in the Foreign Exchange Market
This article offers a survey of the literature on foreign exchange intervention, including sections on the theoretical channels through which intervention might affect exchange rates and a summary of the empirical findings. Read More
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Currency Competition in a Fundamental Model of Money
We study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. Read More
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The Economy in Perspective
Imagine strong expansion, It’s easy if you try, There’d be no unemployment, Just think what you could buy, Imagine all the people Living well today... Read More
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Monetary Policy
At its October 28 meeting, the Federal Open Market Committee (FOMC) kept the intended federal funds rate at 1%. Read More
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Foreign Central Banks
Major central banks have not moved in concert lately. The Bank of Japan made another easing adjustment, raising the top of its target range for current account balances. Read More
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Money and Financial Markets
Short-term interest rates have been trending downward since late 2000, moving roughly in tandem with changes in the federal funds rate. Read More
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A Theory of Money and Banking
We construct a simple environment that combines a limited communication friction and a limited information friction in order to generate a role for money and intermediation. Read More
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An Analysis of Japanese Foreign Exchange Interventions
The effectiveness of Japanese interventions over the past decade depended in large part on the frequency and size of the transactions. Read More
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Monetary Policy
Growth in the monetary base moderated to an annualized 5.7% rate between January and September, far below its five-year average of 7.9%. Read More
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The Economy in Perspective
The big picture point by point, or “Sunday Afternoon on the Island of La Grande Jatte” (Georges Seurat, 1886) Read More
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Foreign Exchange and the Liquidity Trap
When short-term interest rates hover near zero, central banks may have difficulty offsetting downward momentum on prices and economic activity through traditional monetary policy channels, since commercial banks have little incentive to make loans. Read More
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Japanese Intervention
The Japanese Ministry of Finance has recently come under criticism for its frequent, heavy interventions in the foreign exchange market. Read More
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Foreign Central Banks
The major central banks’ operating targets have not changed over the past three months, but interest rate cuts in other countries have been common. Read More
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Money and Financial Markets
At its September 16 meeting, the Federal Open Market Committee (FOMC) did not change either the federal funds rate target (1%) or the primary credit rate (2%). Read More
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International Reserves: Expensive Insurance
Since the 1997–98 financial crisis, many East Asian countries have greatly increased their holdings of foreign exchange reserves as insurance against exchange rate fluctuations and international crises. Read More
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Business Cycles and Monetary Policy
The period after the 1991 recession, dubbed the “jobless recovery,” was not historically typical; the current episode, sometimes called the “job-loss recovery,” is even more anomalous. Read More
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What Is the Right Inflation Rate?
The primary objective of most of the world’s central banks these days is to keep inflation low, and the range of inflation rates banks find acceptable appears to be around 2.5 percent to 3.5 percent. Read More
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The Economy in Perspective
Work in progress…Work in America is under scrutiny once again. Read More
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Monetary Policy
The Federal Open Market Committee made no change in its target for the federal funds rate at its August 12 meeting. Read More
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An Option for Anticipating Fed Action
Options contracts on federal funds futures, a new financial instrument introduced earlier this year, can be analyzed to gauge public expectations of future Fed actions. Read More
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Foreign Central Banks
None of the four major central banks has changed its operating target since July 10, when the Monetary Policy Committee of the Bank of England reduced its policy rate from 3.75% to 3.5%. Read More
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Money and Financial Markets
The yield curve has steepened since last month, but this change represents more than a bounce-back from the summer’s exceptionally low longterm rates; current yields show an increase over April and May as well. Read More
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Monetary Policy
After the surprise of a smaller-than expected cut in the federal funds rate at the June 24–25 meeting of the Federal Open Market Committee (FOMC), market participants see little chance of a further rate cut. Read More
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The Economy in Perspective
Plus ça change, plus c’est la même chose. (The more things change, the more they remain the same.) Read More
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Money and Financial Markets
The trajectory of expected future policy actions has changed dramatically since the beginning of summer. Read More
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Euro Intervention
Prompted by the euro’s sharp appreciation against the dollar, German chancellor Gerhard Schröder recently suggested that the European Central Bank intervene in the foreign exchange market to “maintain the competitiveness of exports from Europe.” Read More
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Foreign Central Banks
The Bank of England reduced its policy rate 25 basis points (bp) to 3.5% on July 10. Read More
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What’s Driving the Dollar?
Market reports often suggest that nervous international investors are driving down the dollar’s foreign exchange value. Read More
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The Economy in Perspective
Matters of interest…The Federal Open Market Committee reduced its federal funds rate target by 25 basis points at its June 25 meeting, and the Board of Governors reduced the discount rate on primary credit by an equal amount the same day. Read More
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Monetary Policy
At its June 25 meeting, the Federal Open Market Committee (FOMC) lowered the intended federal funds rate 25 basis points (bp) to 1%, the thirteenth rate cut since the current round of easing began in January 2001. Read More
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A Deposit Insurance System for Armenia
We provide an overview of the design for a system of official deposit guarantees for the Republic of Armenia. Read More
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The Taylor Rule: A Guidepost for Monetary Policy?
Once a topic to be found only in scholarly economic journals, the Taylor rule is popping up regularly in news magazines, finance journals, and central bankers’ speeches. Does the Fed follow the rule? Should it? Read More
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Money and Financial Markets
Options on federal funds futures have traded on the Chicago Board of Trade since March 2003. Read More
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Foreign Central Banks
The European Central Bank reduced its policy rate to 2% early in June. Read More
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The Economy in Perspective
My dinner with André…The time: a gloomy summer evening. Read More
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Migration to and from Ohio
Over the last 30 years, Ohio’s population growth has been well below the national average. After the recessions of 1973–75 and those of the early 1980s, the state saw an exodus of individuals and outright (net) population declines. Read More
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Monetary Policy
At its May 6 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 1.25% and left the primary credit rate unchanged at 2.25%. Read More
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Foreign Central Banks
On May 6, the Federal Reserve’s Open Market Committee voted unanimously to maintain its 1.25% federal funds rate target. Read More
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Is China’s Currency Undervalued?
If China adopted freely floating exchange rates, its currency would probably appreciate somewhat more than it has on a trade-weighted basis and, perhaps, relative to the dollar. Read More
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Money and Financial Markets
Although financial headlines announce changes in the target federal funds rate, the nature of those changes cannot be appreciated without understanding their effect on the money supply. Read More
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The New Discount Window
New regulations will change the way credit is rationed at the Federal Reserve’s discount window. Read More
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Monetary Policy
While the Federal Reserve has not changed the target federal funds rate this year, the fed funds futures market sees at least a possibility that rates will be lowered from their current level of 1.25%. Read More
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The Economy in Perspective
Too much of a little thing…Federal Reserve Board Chairman Alan Greenspan concluded his prepared testimony to the U.S. House of Representatives’ Committee on Financial Services on April 30 with a comment about inflation. Read More
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Foreign Central Banks
The Bank of Japan, alone among the four major central banks, loosened its policy setting over the past month by an additional ¥5 trillion in current account balances. Read More
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Money and Financial Markets
While the Federal Reserve controls several nominal interest rates, the real economy is affected by real rates, that is, rates adjusted for inflation. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 1.25%, noting that “the hesitancy of the economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties.” Read More
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The Economy in Perspective
Beyond Baghdad…As this is being written, coalition forces have just entered Baghdad, and with surprising ease. Read More
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Money and Financial Markets
The yield curve’s upward slope suggests that liquidity is adequate for economic expansion. Read More
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Foreign Central Banks
All four major central banks recently noted weaker economic conditions. Read More
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Dollar Depreciation and the Current Account
The U.S. current account deficit—a broad measure of our trade position— has expanded sharply since 1996 and is likely to reach $590 billion (5.5% of GDP) this year. Read More
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The Economy in Perspective
War…As this goes to press, war with Iraq appears more likely than it did last month—indeed, it seems nearly imminent. Read More
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Monetary Policy
The Board of Governors released its semiannual Monetary Policy Report to the Congress, which noted that although “the economy remained sluggish at the end of 2002 and early this year,” the household sector “continued to be a solid source of demand.” Read More
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Another Jobless Recovery
The expansion of the 1990s began with such unexpectedly slow employment growth that commentators called it the “jobless recovery.” Read More
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Foreign Central Banks
On March 6, the European Central Bank reduced its target interest rate by 25 basis points (bp) to 2.5%. Read More
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Money and Financial Markets
At the short end of the maturity spectrum, interest rates tend to follow the federal funds rate closely. Read More
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Open and Operating Providing Liquidity to Avoid a Crisis
The terrorist attacks of 9/11 triggered a staggering increase in demand for U.S. dollars all over the world, a demand which threatened to disrupt the American payments system but was met swiftly and successfully by the Federal Reserve. Read More
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Monetary Policy
As of January 9, 2003, instead of the discount rate, Federal Reserve Banks began to offer depository institutions two discount window programs: primary credit and secondary credit. Read More
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The Economy in Perspective
Malaise…In 1979, Jimmy Carter told the American people that we were experiencing a “crisis of confidence” in our country. Read More
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Foreign Central Banks
The Bank of England reduced its policy rate by 25 basis points to 3.75% on February 6. Read More
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Dollar Depreciation and the Current Account
Since its most recent peak in February 2002, the U.S. dollar has depreciated nearly 11% on a trade-weightedaverage basis against the currencies of the major industrial countries. Read More
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The Taylor Rule
Monetary policy can often be described as a rule or strategy for changing the federal funds rate in response to inflation and other indicators of real economic activity. Read More
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Monetary Policy
On November 6, the Federal Open Market Committee lowered the target federal funds rate 50 basis points, for a total reduction of 525 basis points since the beginning of 2001. Read More
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The Economy in Perspective
New Year’s resolutions…You know the drill: On New Year’s Eve, you write a list of three or four critical wrongs that you swear to right in the year ahead. Read More
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Money and Financial Markets
As a tool of monetary policy, changing interest rates is only the means to an end. One (some would say the only) goal of monetary policy is low, steady inflation. How can we tell if monetary policy is on track for that a goal? Read More
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Foreign Central Banks
For most developed nations, 2002 was a period of economic weakness. Read More
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Answering the Challenges of Creating Economic Opportunity
What can be done to promote economic opportunity for all citizens and help communities prosper? Read More
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Monetary Policy
On November 6, the Federal Open Market Committee lowered its target for the federal funds rate by 50 basis points (bp) to 1.25%. Read More
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The Economy’s Health
Some have argued that the economy entered the recovery or expansion phase of the business cycle in January 2002; others say it is still too early to tell. These mixed signals are certainly evident in the labor market. Read More
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The Economy in Perspective
Collateral damage ... At its early-November meeting, the Federal Open Market Committee reduced its federal funds rate target by 50 basis points, to 1.25%. Although it was the FOMC’s first action since ... Read More
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Foreign Central Banks
On November 6, the Federal Reserve reduced its federal funds rate target 50 basis points (bp) to 1.25%. Since then, the Bank of England’s Monetary Policy Committee has twice left its policy rate unchanged. Read More
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Japanese Interventions
On November 19, Japanese Finance Minister Masajuro Shiokawa formally asked the Bank of Japan not to neutralize the monetary effects of any foreign exchange interventions that the Ministry of Finance (MF) might undertake. Read More
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Money and Financial Markets
The sharp decline in interest rates over the past two years reduced the opportunity cost of holding monetary instruments nearly to zero. Read More
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Scope and Scale Economies in Federal Reserve Payment Processing
In the past decade, the U.S. economy has witnessed a tremendous surge in the usage of electronic payment processing services and an increased importance of the firms that provide these services. Read More
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Three Myths about Central Banks
Do central banks control the business cycle? Should price stability be their only monetary policy goal? Do politicians give up a degree of power and gain nothing personally when they grant central banks independence? Read More
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The Economy in Perspective
History in the making ... Although most economists think the recession that began in March 2001 concluded nearly a year ago, no official endpoint has yet been announced. Read More
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Monetary Policy
The daily average effective federal funds rate typically remains close to target. Since the beginning of 2000, the average absolute deviation of the effective rate from the intended rate has been about ... Read More
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Foreign Central Banks
Views of the global economic outlook seemed to consolidate recently around a longer period of weakness. Read More
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Money and Financial Markets
Toward the end of October, the yield curve became slightly inverted, with the six-month Treasury bill yield falling below the three-month yield. This inversion probably was driven by expected cuts in the federal funds rate. Read More
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Dollarization Whats in It for US
Should the United States care if other countries abandon their own currencies and adopt the dollar? Read More
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Monetary Policy
At its September 24 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 1.75%, citing “robust underlying productivity growth” as the basis for maintaining monetary policy’s current stance. Read More
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The Economy in Perspective
Connecting the dots ... Economic policymakers can sympathize with the national security analysts who are criticized for not putting together the pieces that seem—after the fact—to have formed an unmistakable picture. Read More
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Options and the Future: What Do Markets Think?
We’re used to hearing analysts make predictions about where the economy is headed based on changes in the prices people are paying for stocks, futures, or other assets. Read More
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Money and Financial Markets
The spread between corporate and government interest rates typically rises during recessions and then declines when the recovery gets under way. Read More
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Foreign Central Banks
None of the four major central banks changed its policy setting over the past month, although all acknowledge a potential for weakness in the global outlook. Read More
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A Simple Search Model of Money with Heterogeneous Agents and Partial Acceptability
Simple search models have equilibria where some agents accept money and others do not. Read More
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Dynamics, Cycles and Sunspot Equilibria in “Genuinely Dynamic, Fundamentally Disaggregative” Models of Money
This paper pursues a line of Cass and Shell, who advocate monetary models that are "genuinely dynamic and fundamentally disaggregative" and incorporate "diversity among households and variety among commodities." Read More
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Price Setting, Price Dispersion, and the Value of Money — Or — The Law of Two Prices
We study models that combine search, monetary exchange, price posting by sellers, and buyers with preferences that differ across random meetings-say, because sellers in different meetings produce different varieties of the same good. Read More
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Search, Money and Capital: A Neoclassical Dichotomy
Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. Read More
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A Unified Framework for Monetary Theory And Policy Analysis
Search-theoretic models of monetary exchange are based on explicit description of the frictions that make money essential. Read More
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The Economy in Perspective
To cut, or not to cut—that is the question: Read More
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Monetary Policy
At its August 13 meeting, the Federal Open Market Committee left the target federal funds rate unchanged, although it altered the balance-of-risk statement “towards conditions that may generate economic weakness.” Read More
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Foreign Central Banks
None of the four major central banks changed its policy setting over the past month. Read More
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Money and Financial Markets
The Federal Open Market Committee’s August 13 statement indicated that the balance of risks for the economy tilted toward economic weakness, a change from its previous statement that economic weakness and inflation were evenly balanced. Read More
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The Economy in Perspective
Stormy weather ... Recent developments, along with fresh data for 2001, are prompting forecasters to revise their expectations of economic activity downward for the rest of this year. Read More
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Monetary Policy
At its June 26 meeting, the Federal Open Market Committee (FOMC) decided to leave the federal funds rate unchanged at 1 3/4%, its intended level since December 2001. Read More
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Foreign Central Banks
Policy settings at the four major central banks have remained unchanged throughout this year. Read More
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Money and Financial Markets
The drop in short-term interest rates over the past 18 months sharply reduced the opportunity cost of holding monetary assets. Consequently, the demand for money, as measured by M2, rose sharply in 2001. Read More
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Is the Dollar Sustainable
Shaken by disclosures in U.S. equity markets, the dollar has slid about 7% against the currencies of our major trading partners since April. Some economists worry that a more fundamental adjustment may be in the offing. Read More
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Monetary Policy
At its June 25–26 meeting, the Federal Open Market Committee left the intended federal funds rate unchanged at 1.75%. The FOMC indicated in its press release that “economic activity is continuing to increase. Read More
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The Economy in Perspective
Taking care of business ... In 1925, President Calvin Coolidge told the Society of American Newspaper Editors that the business of America is business. Read More
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Money and Financial Markets
In June, long-term Treasury rates dropped markedly, more than 20 basis points in the case of the 10-year Treasury. Read More
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Foreign Central Banks
The policy settings of the four major central banks remain unchanged. Read More
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The Economy in Perspective
Fabricating the truth ... We hear and read so many opinions, from so many sources, that it is often difficult to tell fact from fiction. Read More
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Monetary Policy
At its May 7 meeting, the Federal Open Market Committee left the intended federal funds rate unchanged at 1.75%. Read More
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An Incentive-Compatible Suggestion for Seigniorage Sharing with Dollarizing Countries
This article offers a proposal for seignoirage sharing. Read More
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Monetary Policy in a Financial Crisis
What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Read More
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Fear and Loathing of Central Banks in America
The Federal Reserve System is America’s uneasy compromise between our wariness of concentrated financial power and our desire to promote efficiency in our national payments system. Read More
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Money and Financial Markets
Growth rates for broad money measures, such as M2 and M3, slowed markedly in the early months of 2002. Read More
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Foreign Central Banks
The four major central banks did not change their stated policy settings in May, although some movement in policy outlook can be seen. Read More
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Why Is Stable Money Such a Big Deal?
What do attempts to counterfeit an enemy’s currency during wartime have in common with decisions to adopt another country’s currency during peacetime? Read More
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The Economy in Perspective
The real thing? ... At this writing, we have just finished preparations for the May 7 meeting of the Federal Open Market Committee. Read More
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Monetary Policy
With no FOMC meeting in April and no intermeeting move, the target federal funds rate and the discount rate have remained unchanged since March. Read More
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Money and Financial Markets
Because price stability is a long-run goal of the Federal Reserve System, monetary policy’s effect on inflation is always a major concern. Read More
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Foreign Central Banks
The four major central banks continue to keep their policy settings unchanged. The Bank of Canada, on the other hand, raised its policy rate 25 basis points to 2.25% in mid-April. Read More
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A Beautiful Theory
It wasn’t A Beautiful Mind—the book or the movie—that made John Forbes Nash, Jr., famous. It was his work in game theory, a theory that models strategic interactions between people as games. Read More
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Does It Matter (for Equilibrium Determinacy) What Price Index the Central Bank Targets?
What inflation rate should the central bank target? Read More
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Monetary Policy
In simple textbook models of the aggregate economy, monetary policy is either expansionary, contractionary, or neutral with respect to the real economy and the price level ... Read More
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The Economy in Perspective
Even as U.S. military forces combat terrorism in Afghanistan, Secretary of State Colin Powell prepares to travel to the Middle East. Read More
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Foreign Central Banks
The four major central banks left their policy settings unchanged over the past month. Read More
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Money and Financial Markets
Annualized productivity growth in 2001:IVQ, which recently was revised upward from 3.5% to 5.2%, was surprisingly strong. Read More
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Why Haven't Long-Term Interest Rates Fallen?
In 2001, the Federal Reserve lowered the federal funds rate target more than it had in over 25 years, but long term interest rates didn’t budge. Has monetary policy become ineffective? Just the opposite, the authors argue. Read More
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Electronic Money and the Future of Central Banks
Computers and telecommunications devices may replace paper currency and checks—some day. Indeed, electronic methods of transferring money have become widely used. Read More
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The Economy in Perspective
The error of our ways ... The Bureau of Labor Statistics announced last week that the nation’s unemployment rate, instead of edging back up in February after an unexpected January dip, declined further to 5.5 percent. Read More
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Monetary Policy
On February 27, the Board of Governors of the Federal Reserve System released its semiannual Monetary Policy Report to the Congress. Read More
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The West Virginia Budget
In January, Governor Wise presented his annual proposal for West Virginia’s budget for fiscal year 2003. Read More
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Money and Financial Markets
Growth in the broad monetary aggregates appears to have slowed considerably during January 2002. Read More
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Foreign Central Banks
None of the four major central banks has changed its monetary policy operating target so far this year, though the Bank of Japan increased its commitment to purchase long term government bonds ... Read More
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Monetary Policy Rules and Stability: Inflation Targeting versus Price-Level Targeting
Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. Read More
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The Economy in Perspectivee
Walking a hard line ... In the face of ever-brighter business conditions, passing an economic stimulus package finally proved too hard a row for the U.S. Congress to hoe. Read More
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Monetary Policy
At its meeting of January 29–30, the Federal Open Market Committee left the intended federal funds rate unchanged at 1.75%, while the discount rate remained at 1.25%. Read More
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Foreign Central Banks
In January, the Argentine government abandoned the currency board arrangement that had maintained one to one parity between the peso and the U.S. dollar for about a decade. Read More
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Is the Dollar Overvalued?
Despite continuing weakness in U.S. economic activity and sharp reductions in the Federal Reserve’s key target interest rates, the dollar remains strong in foreign exchange markets. Read More
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Money and Financial Markets
In 2001, the monetary aggregates grew rapidly across the entire spectrum of liquidity. Read More
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Monetary Policy
On December 11, 2001, the Federal Open Market Committee (FOMC) lowered the target federal funds rate 25 basis points (bp) to 1.75%. Read More
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The Economy in Perspective
Money talks ... Many analysts have been projecting a decline in the dollar’s foreign exchange value for years now. Read More
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Japan’s Economy
In mid-December, the Japanese yen began another bout of weakening against the dollar. Read More
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Money and Financial Markets
Although headlines about monetary policy mostly announce changes in the target federal funds rate, the nature of those changes cannot be appreciated without looking at their effect on the money supply. Read More
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Foreign Central Banks
Only two major central banks took easing actions over the past month. Read More
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Monetary Policy and Asset Prices with Imperfect Credit Markets
The Modigliani-Miller theorem is fundamental to the theory of corporate finance. One of the theorem's immediate implications is that there is no reason for the monetary authority to respond to asset prices. Read More
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Monetary Policy
In November, Federal Open Market Committee lowered the intended federal funds rate 50 basis points (bp) to 2%. Its press release stated the “necessary reallocation of resources to enhance security may restrain advances in productivity for a time.” Read More
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The Economy in Perspective
Last month, the National Bureau of Economic Research’s Business Cycle Dating Committee announced that U.S. economic activity peaked in March. Read More
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Money and Financial Markets
Many interest rates have fallen to their lowest levels in 30 years (except for a brief period in 1998 after the Asian financial crises and the Russian default). The benchmark effective federal funds rate averaged just 2.49% in October. Read More
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Foreign Central Banks
In the second week of November, the Federal Reserve, the Bank of England, and the European Central Bank each cut its target interest rate 50 basis points (bp) for a total reduction of 450, 200, and 150 bp, respectively, in policy rates this year. Read More
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Japanese Monetary Policy
Japan’s economy has contracted, and the price level has fallen for much of the last decade. Prospects for a turnaround seem dim. Economists believe near-zero short-term interest rates and falling aggregate price levels have stymied monetary policy. Read More
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A Simple Model of Money and Banking
The authors define money to be any object that circulates widely as a means of payment and a bank to be an agency that simultaneously issues money and monitors investments. Read More
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The Economy in Perspective
I had seen my old friend André last July, when he astonished me with news that he had returned to politics in Nedlaw, his native land. Delighted to be meeting again so soon, I raised my glass in a toast as we sat in the Endless Bounty. Read More
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Monetary Policy
Implied yields on federal funds futures often are used to gauge market participants’ expectations of the future course of monetary policy. Read More
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Foreign Central Banks
The Bank of England cut its policy rate 25 basis points (bp) on October 5, following the Federal Open Market Committee’s 50 bp cut on October 3. Read More
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Money and Financial Markets
Short-term Treasury yields plummeted immediately after the September 11 terrorist attacks and have declined further since then, at least for maturities longer than three months. Read More
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Estimates of Scale and Cost Efficiency for Federal Reserve Currency Operations
Meeting the currency demands of depository institutions, businesses, and consumers costs the Federal Reserve more than half a billion dollars each year, yet, very little research has been devoted to understanding what factors affect such costs. Read More
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Timing and Real Indeterminacy in Monetary Models
An increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy. Read More
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Monetary Policy in a World Without Perfect Capital Markets
This working paper examines a theoretical model in which an entrepreneur's net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy. Read More
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The Economy in Perspective
September 11 terrorist attacks have dramatically altered economic landscape. Before, many analysts had conjectured economic conditions were stabilizing, but attacks sapped economy’s momentum and dealt a staggering blow to several industries. Read More
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Monetary Policy
The events of September 11 raised the possibility of disruptions in the payments system and the federal funds market. Soon after the attacks, the Federal Reserve announced that the discount window was “available to meet liquidity needs.” Read More
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Taylor Rules in a Model that Satisfies the Natural Rate Hypothesis
The authors analyze the restrictions necessary to ensure that the interest-rate policy rule used by the central bank does not introduce real indeterminacy into the economy. Read More
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Learning and the Central Bank
It is well known that sunspot equilibria may arise under an interest-rate operating procedure in which the central bank varies the nominal rate with movements in future inflation (a forward-looking Taylor rule). Read More
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How Well Does the Federal Funds Futures Rate Predict the Future Federal Funds Rate?
Contrary to popular belief, federal funds futures rates do not tell us precisely where the market thinks federal funds rates will be in the future. Read More
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Foreign Central Banks
Major central banks supplied the liquidity their banking systems needed to remain open and to make payments after the September 11 attack. Read More
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Money and Financial Markets
At least since Walter Bagehot’s day in the late 1800s, the classic advice to central banks in real or incipient financial crises has been to “lend freely”—in modern parlance, to supply liquidity. Read More
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Exchange Rates and Monetary Policy
Changes in the federal funds target rate affect economic activity through different channels or transmission mechanisms. Most people understand the interest rate transmission mechanism. Read More
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The Economy in Perspective
A dialogue between Paasche and Laspeyres. The setting: An office. A computer. Evening. [Paasche, staring intently at the computer monitor, keeps repositioning the mouse. He moves, clicks, and moves again. He gives up, sighs, and tries again.] Read More
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Monetary Policy
At its August 21 meeting, the Federal Open Market Committee lowered the intended federal funds rate 25 basis points (bp) to 3 1/2%. Read More
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Foreign Central Banks
The world’s major central banks took easing actions in August. Target rates dropped 0.25 percentage point: the Federal Reserve’s rate to 3.5%; the Bank of Canada’s to 4.0%; the ECB’s to 4.25%; and the Bank of England’s to 5%. Read More
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Money and Financial Markets
Despite the Federal Open Market Committee’s aggressive three percentage-point reduction in the intended funds rate since January, hopes for an incipient resurgence in economic activity appear to be slipping. Read More
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The Economy in Perspective
Among connoisseurs of official economic statistics, the Commerce Department’s recent revision to the national income and product data for the last few years has already caused quite a hubbub. Read More
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Monetary Policy
The Board of Governors of the Federal Reserve System submitted its semiannual Monetary Policy Report to the Congress on July 18. Read More
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Foreign Central Banks
None of the four major central banks has changed its policy setting since the Federal Reserve shaved 25 basis points from the federal funds rate target in late June. Read More
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Money, Manufacturing, and the Strong Dollar
Some commentators have urged the Federal Reserve to help U.S. firms that export or that compete against imports by easing monetary policy and fostering a dollar depreciation. This is a bad idea. Read More
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Money and Financial Markets
Monetary Policy Report that Federal Reserve recently submitted to Congress includes an updated set of economic projections from Board of Governors and Federal Reserve Bank presidents, all of whom participate in deliberations of FOMC. Read More
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Money, Manufacturing, and the Strong Dollar
U.S. firms are facing tough international competition, and the U.S. trade deficit has grown to a level that some find alarming. Read More
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The Economy in Perspective
On my way to the restaurant, I realized that I hadn’t seen André in nearly 18 months, although I’d heard plenty about him. Read More
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Monetary Policy
Federal Open Market Committee (FOMC) lowered intended federal funds rate 25 basis points (bp) to 3.75%, citing “declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad” as reasons for rate cut. Read More
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Sterilized Intervention, Nonsterilized Intervention, and Monetary Policy
Sterilized intervention is generally ineffective.Countries that conduct monetary policy using an overnight, interbank rate as an intermediate target automatically sterilize their interventions. Read More
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Money and Financial Markets
Have we gone too far? Or is this just a beginning? Some consider the actions of the Federal Open Market Committee (FOMC) during the current economic slowdown fully consistent with the quest for maximum long-term real growth through low inflation. Read More
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Foreign Central Banks
Major central banks made no changes in operating targets in June until the Federal Reserve announced a rate cut of 25 basis points (bp) on June 27. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) lowered the intended federal funds rate 50 basis points (bp) to 4% at its May 15 meeting. Its press release cited weakened business profitability as a factor in reduced spending on capital equipment. Read More
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The Economy in Perspective
According to Fed-watchers, the Federal Reserve is nearing a crossroads in its thinking about the need for further reductions in the federal funds rate. Read More
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Migration of Graduates
Developing a highly skilled workforce is often the justification for state spending on high school and higher education programs, but those education dollars do not necessarily translate directly into a better-educated workforce in that state. Read More
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Money and Financial Markets
Interest rates fell across the entire maturity spectrum last winter, when incoming data revealed an abrupt weakening in economic conditions. Read More
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Foreign Central Banks
On May 11, the European Central Bank (ECB) cut its main refinancing rate target 25 basis points (bp) to 4.5%. It was the last major central bank to respond to the current global economic slowdown. Read More
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Coalitions, Power, and the FOMC
We apply a notion of power defined for coalitions derived from the Shapley value. We calculate the power of coalitions within a twelve-person committee, meant to correspond to the FOMC. Read More
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Monetary Policy with Humility
When the economy slows, monetary policymakers face pressure to deviate from their longer-term goals to address short-term problems. Read More
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The Economy in Perspective
This morning the Bureau of Labor Statistics reported that payroll employment declined by more than 200,000 people in April, a much larger number than private analysts had expected. Read More
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Monetary Policy
In an inter-meeting action on April 18, 2001, the Federal Open Market Committee (FOMC) lowered the intended federal funds rate 50 basis points (bp) to 4.5%, its lowest level since August 1994. Read More
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Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. Read More
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Foreign Central Banks
Reductions in the Federal Open Market Committee’s interest rate target this year have been paralleled by three other central banks of the G7, but not by the European Central Bank (ECB). Read More
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Money and Financial Markets
Starting in mid-1999, the intended federal funds rate first was raised from 4.75% to 6.5% in six steps and then was cut sharply to 4.5% in four moves of 50 basis points (bp) each. Read More
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The Economy in Perspective
The Federal Open Market Committee has reduced its policy-controlled interest rates—the federal funds rate target and the discount rate—three times already this year, and if the majority of Fed-watchers are right, more rate cuts are in the offing. Read More
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Monetary Policy
At its March 20 meeting, the Federal Open Market Committee (FOMC) lowered the target federal funds rate 50 basis points (bp) to 5.0%, the third 50-bp cut in 2001. Read More
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Money and Financial Markets
The March 20 reduction of the federal funds rate target (from 5.50% to 5.00%) has not quelled discussion on the appropriateness of monetary policy. Read More
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Japan’s Monetary Policy
Deflation and relatively weak economic growth have bedeviled Japan's economy for more than two years. Sharp declines in real growth and inflation during early 1990s were followed by several years of advancing growth rates and low measured inflation. Read More
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Monetary Policy and Self-Fulfilling Expectations: The Danger of Forecasts
What rule should a central bank interested in inflation stability follow? Because monetary policy tends to work with lags, it is tempting to use inflation forecasts to generate policy advice. Read More
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Beyond Zero: Transparency in the Bank of Japan's Monetary Policy
Japan’s economy has problems that, undoubtedly, are more complex than monetary policy might be expected to solve Read More
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The Economy in Perspective
The tangible manifestations of the current U.S. economic slump have reinvigorated the Old Economy/New Economy debate. Read More
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Monetary Policy
On February 13, Board of Governors of the Federal Reserve System submitted its semiannual Monetary Policy Report to Congress, and Federal Reserve Chairman Alan Greenspan testified before the Senate Committee on Banking, Housing, and Urban Affairs. Read More
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International Monetary Policy Rates
The central banks of other major countries have not imitated the Federal Open Market Committee’s 100 basis point (bp) easing of the federal funds rate target in January. Read More
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Money and Financial Markets
Growth in the broad monetary aggregates accelerated sharply in January. Annualized year-to-date M2 growth reached 10.2% and annualized year-to-date M3 growth hit a remarkable 13.2%. Read More
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Monetary Policy
At its January 31 meeting, the Federal Open Market Committee (FOMC) lowered the target federal funds rate 50 basis points (bp) to 5.5%. Read More
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The Economy in Perspective
Most people pondering worst-case scenarios for the U.S. economy this year are likely to be concerned that the slowdown we have been experiencing will be unusually steep and protracted. Read More
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Foreign Central Banks
Central banks for the major currencies use somewhat different institutional and market devices to implement policy. Read More
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Money and Financial Markets
Now that 2000 is history, we can put its monetary and financial developments into perspective and, at the same time, use them to illuminate the current state of the economy. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) maintained the intended federal funds rate at 6.5% on December 19, its final regular meeting of 2000. Read More
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The Economy in Perspective
Recession. There, we said it! Not that we are predicting one, mind you, but we’ve noticed that the R-word is rarely used in Federal Reserve publications and we just wanted to get it into print. Read More
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Interest Rates
As 2000 closed, the yield curve was inverted, with a 3-year, 3-month spread of –78 basis points (bp) and a 10-year, 3-month spread of –74 bp. The inversion’s proximate cause was an increase in short rates combined with a decrease in long rates. Read More
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Is the Political Business Cycle for Real?
This paper's macroeconomic model combines features from both real and political business cycle models. Read More
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Money Demand and Inflation in Peru, 1979–91
In this essay, Jaime Ventura explores the factors that affected Peruvians’ money demand during a terrible period of hyperinflation and considers whether the government caused the hyperinflation by printing too much money to gain seigniorage revenue. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) left the intended federal funds rate at 6.5% on November 15, the fourth consecutive meeting that has resulted in no change. Read More
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The Economy in Perspective
Behind the curve…Those who put their money where their mouths are speculate that next April, the federal funds rate will be nearly 50 basis points lower than today’s 6.5% rate. Read More
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Interest Rates
The yield curve remains inverted, having shifted down over the past month. The 3-year, 3-month spread has widened from –52 to –65 basis points (bp), and the 10-year, 3-month from –62 to –70 bp. Read More
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Monetary Policy
Until recently, the Federal Open Market Committee (FOMC) established growth ranges for the broad monetary aggregates (M2 and M3) and domestic nonfinancial debt. Read More
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The Economy in Perspective
Let’s face it. A decade of strong economic growth, capital investment, budget surpluses, and improved job opportunities doesn’t just happen. Read More
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Expectations, Markets, and the “Political” Economy
When it comes to measuring people’s expectations, economists are often skeptical of the direct approach— asking them. Read More
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Exchange Rates
Since June, the euro has continued its slide against the dollar, but many of the reasons cited for its decline fail a simple test. Read More
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Monetary Policy
At its October 3 meeting, the Federal Open Market Committee (FOMC) left the intended federal funds rate unchanged at 6.5%. Read More
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The Economy in Perspective
Growing pains… Policymakers and analysts will be closely scanning fourth-quarter data for signs of a meaningful slowing in U.S. economic activity. Read More
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Understanding the Wash Cycle
Money laundering has gone on since the first crime was committed for profit, but it has been explicitly illegal only since 1986. Read More
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Optimal Use of Scale Economies in the Federal Reserve's Currency Infrastructure
Could the Federal Reserve lower its overall currency processing costs by reallocating its high-speed currency sorting volume? Read More
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The Economy in Perspective
Thinking productively about monetary policy… Read More
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Monetary Policy
At its August 22 meeting, the Federal Open Market Committee (FOMC) left the intended federal funds rate unchanged at 6.5%. Read More
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Interest Rates
The yield curve has inverted further since last month, with yields on maturities of two years and above falling, and those below two years rising. Read More
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How to Keep Growing "New Economies"
Economists should focus on the more interesting and useful question: How do we create the sort of environment in which innovation and the productive use of new technology thrive, thereby creating economic prosperity? Read More
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Monetary Shocks, Agency Costs, and Business Cycles
This paper integrates money into a real model of agency costs. Money is introduced by imposing a cash-in-advance constraint on a subset of transactions. Read More
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Implementing the Friedman Rule
In cash-in-advance models, necessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto optimal allocations place restrictions only on the asymptotic, behavior of the money supply. Read More
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Money Growth Rules and Price Level Determinacy
The authors show that in a plausibly calibrated monetary model with explicit production, exogenous money growth rules ensure real determinacy and thus avoid sunspot fluctuations. Read More
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The Economy in Perspective
This puzzle is designed to help our readers test their economics I.Q. as they lounge in a hammock or lie on the beach. Read More
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Monetary Policy
After the Federal Open Market Committee (FOMC) decided in June to leave the intended federal funds rate unchanged, market participants lowered their expectation that the rate would be increased at the FOMC’s August 22 meeting. Read More
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Forward-Looking Versus Backward-Looking Taylor Rules
This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. Read More
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The Dollar and International Trade
The U.S. goods deficit increased $0.3 billion in May, reaching $37.2 billion, while the services surplus decreased $0.3 billion to $6.1 billion. Read More
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Interest Rates
What is the best way to illustrate interest rate movements? Read More
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U.S. Payments Overview
The payment system, made up of the various methods available to settle debts and obligations, performs an important role in facilitating economic activity. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) left the intended federal funds rate unchanged at 6.5% at its June 27–28 meeting, the first this year at which the target rate was not increased. Read More
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The Economy in Perspective
Strictly for the birds…Chicken Little was walking in the woods, worrying about the state of the economy, when an acorn fell on his head. “The economy is collapsing,” he cried, “I must run and tell the press.” Read More
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Interest Rates
The yield curve has shifted downward at all maturities since last month. Read More
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Who Is That Guy on the $10 Bill?
Alexander Hamilton is perhaps the least known and most misunderstood of our nation’s founders. Read More
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The Economy in Perspective
Color my world … The possibilities for monetary policy head games expanded with the June 2 release of new labor market statistics indicating that private-sector payroll employment declined by 116,000 in May Read More
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Monetary Policy
At its May 16 meeting, the Federal Open Market Committee (FOMC) voted to raise the federal funds target rate 50 basis points (bp) to 6.5%. Read More
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Understanding the Fiscal Theory of the Price Level
Price stability is an important goal of public policy. To reach this goal, two key questions must be addressed: How can price stability be achieved? And, How much price stability is desirable? Read More
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Interest Rates
Over the past month, the yield curve shifted higher while retaining its humped shape, with short and long rates lower than medium-term rates. Read More
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The Dollar
Over the past three years, financial turmoil in Asia, Russia, and Brazil encouraged foreign investors to shift large amounts of funds into the U.S., prompting a broad-based appreciation of the dollar. Read More
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Economic Policy for Our Era: The Ohio Experience
Northeastern Ohioans can give much of the credit for their revitalized economy to the revolution in communications technology, or more precisely, to the globalization of business that the revolution has allowed. Read More
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Generalized Search-Theoretic Models of Monetary Exchange
We present new results on existence, the number of equilibria, and welfare for search-theoretic models of money that extend the literature in several ways. Read More
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Monetary Policy
The intended federal funds rate has been at 6.0% since the March 21 meeting of the Federal Open Market Committee (FOMC). Read More
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The Economy in Perspective
Once upon a time . . . there lived a grasshopper named Lucky and an ant named Ernest. Read More
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Interest Rates
Do interest rates tell us if inflation— or expected inflation—has increased? Read More
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The Expectations Trap Hypothesis
We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of fear of violating the public's inflation expectations. Read More
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Monetary Policy
At its March 21 meeting, the Federal Open Market Committee raised the federal funds rate target 25 basis points (bp) to 6.0%. Read More
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The Economy in Perspective
Caveat emptor…Economic activity surged at the end of last year, expanding at an annualized rate of 7.3% in real terms. Read More
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Interest Rates
The yield curve continues to show a humped shape, with long rates falling since last month. Read More
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To Fix or to Float? Argentina and Mexico
Argentina and Mexico provide an ongoing test of the relative merits of fixed and floating exchange rates. Read More
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The Fiscal Theory of the Price Level
A traditional function of the central bank is to control the price level. The fiscal theory of the price level challenges this assumption, arguing instead that the fiscal authority's budgetary policy is the primary determinant of the price level. Read More
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Monetary Policy
On February 17, the Board of Governors of the Federal Reserve System submitted its semiannual Monetary Policy Report (or Humphrey– Hawkins Report) to the Congress, as mandated by the Full Employment and Balanced Growth Act of 1978. Read More
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The Economy in Perspective
On the road again …U.S. stock markets rallied on news that employment grew only 43,000 in February. Read More
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Dollarization and Ecuador’s Sucre
On January 9, 2000, the president of Ecuador proposed official dollarization as a way to halt the rapid depreciation of the country’s currency (the sucre), prevent hyperinflation, and establish economic stability. Read More
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Interest Rates
Unlike most, this month’s yield curve cannot be described as either flatter or steeper than last month’s. Read More
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The Euro
The euro fell below one-to-one parity with the dollar on January 27, 2000, initiating calls for foreignexchange- market intervention. Read More
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The Century of Markets
We are in the midst of a great transition, from an age in which governments intervened in nearly every facet of economic affairs to one in which market forces not only make political borders transparent to commerce, they shape political policies. Read More
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Designing Stabilization Policy in a Monetary Union
In this paper, we study a two-country world economy and consider various designs of monetaryunion. Read More
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Monetary Policy
Implied yields on federal funds futures are often used to gauge market participants’ expectations for the future path of policy. Read More
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The Economy in Perspective
The price of success… The Federal Open Market Committee voted on February 2 to increase the federal funds target ¼ percentage point, to 5¾ %. Read More
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Why Intervention Rarely Works
Foreign-exchange-market intervention is generally ineffective when undertaken independent of monetary policy. Read More
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Interest Rates
The yield curve has moved upward and steepened since last month. Read More
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Waiting for Policy Rules
Should central bankers be free to decide what policy actions they will take and when they will take them, or should they agree to an explicit policy rule and stick to it? Read More
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The Evolving Global Monetary Order
In a speech at the Cato Institute, Jerry L. Jordan, President and CEO of the Federal Reserve Bank of Cleveland, discussed the forces shaping the emerging global monetary order. Read More
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ATM Use
The number of ATMs has grown phenomenally over the last few years, mostly in off-premise machines. Read More
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Monetary Policy
The Federal Open Market Committee left the 5.5% intended federal funds rate unchanged at its December 21 meeting, citing the need for “a smooth transition into the Year 2000.” Read More
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The Economy in Perspective
My dinner with André … “Happy New Year, boychik!” André boomed out as he hurtled across the room; moments later, his hug almost knocked the wind out of me. Read More
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Dual-Currency Economies as Multiple-Payment Systems
Monetary search models are valuable for studying how a second currency acceptability arises endogenously in an economy that lacks a stable domestic currency and other more sophisticated payment systems. Read More
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Interest Rates
Over the course of 1999, the yield curve moved higher and steepened, resuming its normal upward slope from a position of relative flatness at the end of 1998. Read More
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Results of a Study of the Stability of Cointegrating Relations Comprised of Broad Monetary Aggregates
We find strong evidence of a stable “money demand” relationship for MZM and M2M through the 1990s. Read More
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Monetary Policy
On November 16, the Federal Reserve System raised both the discount rate and the federal funds rate by a quarter point. The discount rate stands at 5%, while the federal funds rate target is 5.5%. Read More
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Intervention as Information: A Survey
Research has generally failed to find reliable connections between official exchange-market interventions and exchange rates that are consistent with either a monetary or a portfolio-balance theory of exchange-rate determination. Read More
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Currency Portfolios and Nominal Exchange Rates in a Dual Currency Search Economy
We analyze a dual currency search model in which agents are allowed to hold multiple units of both currencies. Hence, agents hold portfolios of currency. Read More
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The Exchange Stabilization Fund: How It Works
The increased turmoil in international financial markets, starting with the Asian crises of 1997, has led to calls for financial assistance from the wealthier nations. Read More
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Interest Rates
The long end of the yield curve has shifted downward slightly since last month, whereas the short end has shifted upward. Read More
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Monetary Policy
After raising the intended federal funds rate target 25 basis points in each of its two previous meetings, the Federal Open Market Committee (FOMC) left the rate unchanged at its October meeting. Read More
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Forecasts and Sunspots: Looking Back for a Better Future
Some would argue that economic forecasts are about as accurate as soothsayers and weather forecasts. Yet central banks all around the world make such forecasts and use them when conducting monetary policy. Read More
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Interest Rates
Since last month, the yield curve has shifted upward and marginally decreased its upward tilt. Read More
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Monetary Policy
The September Federal Open Market Committee (FOMC) meeting concluded with no change in the intended federal funds rate. Read More
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The Economy in Perspective
A productive debate about monetary policy … A country’s rate of productivity growth determines how rapidly it can expand its standard of living. Read More
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Effects of Movements in Equities Prices on M2 Demand
Swings in stock prices are associated with a redirection of household savings flows. Such changes can lead to transitory increases in M2 as investors temporarily "park" funds in depository assets while determining the funds' ultimate destination. Read More
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Interest Rates
What a difference a year makes! One year ago, financial markets were still reeling from the Asian crisis, the Russian default, the collapse of Long Term Capital Management, and the associated flight to quality and liquidity. Read More
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Dollarization and Monetary Sovereignty: The Case of Argentina
By almost any objective measure, Argentina surely stands as one of the outstanding economic success stories of the past decade. Throughout the 1980s, inflation plagued the Argentine economy. Read More
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Optimal Monetary Policy in a Small Open Economy: A General Equilibrium Analysis
This paper uses a model of a small, open economy to address two monetary policy issues: 1) What restrictions on the policy rule ensure that the central bank does not introduce real indeterminacy into the economy? Read More
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Monetary Policy
On August 24, the Federal Open Market Committee (FOMC) raised the intended federal funds rate and the discount rate by 25 basis points each—to 5.25% and 4.75%, respectively. Read More
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Timing and Real Indeterminacy in Monetary Models
An increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy. Read More
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Interest Rates
One closely watched interest-rate spread has been making news lately as it moves to historically high levels. Read More
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Money Growth and Inflation: How Long is the Long-Run?
The growth rate of the money supply currently receives little attention in the conduct of monetary policy. Read More
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Monetary Policy
Implied yields on federal funds futures provide market participants’ best estimate of future monetary policy. Read More
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Interest Rates
The yield curve has flattened slightly since last month. Short rates have fallen a mere nine basis points, but long rates have fallen more ... Read More
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Resisting Electronic Payment Systems: Burning Down the House?
In the Cleveland Museum of Art hangs a famous painting, The Burning of the Houses of Parliament, by J.M.W. Turner. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) changed the federal funds rate target at its June 29 meeting to 5.00%, an increase of 25 basis points. The discount rate remained unchanged at 4.5%. Read More
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Interest Rates
Since last month, interest rates have risen across the board, with a surge in long rates steepening the yield curve. Read More
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Money Growth and Inflation
One of the Federal Reserve’s principal objectives in conducting monetary policy is to maintain low inflation. Read More
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Monetary Policy Regimes and Beliefs
This paper investigates the role of beliefs over monetary policy in propagating the effects of monetary policy shocks within the context of a dynamic, stochastic general equilibrium model. Read More
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Monetary Policy
At its May 18 meeting, the Federal Open Market Committee (FOMC) opted to leave the federal funds rate target unchanged at 4.75%. Read More
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The Yen Exchange Rate
The dollar strengthened against the yen in the past month, continuing a trend that began early this year. Read More
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Interest Rates
Since April, the yield curve has shifted upward and steepened, but it remains fairly flat by historical standards. Read More
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Monetary Policy
Implied yields on federal funds futures are an indication of the average expected future funds rate. Read More
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Exchange-Rate Volatility
Each day, in spot, forward, and swap transactions throughout the world, more than $1.3 trillion in foreign currencies changes hands. Read More
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Interest Rates
The yield curve has not moved much since last month. Both the 3-month and 30-year yields remain unchanged at 4.51% and 5.58%, respectively. Read More
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Money Growth and Inflation: Does Fiscal Policy Matter?
The determinants of inflation have long interested both economists and central bankers. This interest has taken on renewed importance in light of a growing consensus that central banks should —first and foremost—pursue price stability. Read More
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Interpreting the Money Numbers
Some economists are concerned that higher inflation is just around the corner. Read More
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Monetary Policy
After two consecutive weeks of federal funds trading, on average, at the target rate of 4.75% in late February, the rate jumped 10 basis points during the first week of March. Read More
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Interest Rates
The yield curve has steepened since last month, as 3- and 6-month rates fell and all others rose. Read More
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The Exchange Stabilization Fund
The Exchange Stabilization Fund, operated by the U.S. Secretary of the Treasury with the President’s approval, is a major means of giving financial assistance to foreign countries. Read More
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Monetary Policy
On February 23 and 24, Federal Reserve Chairman Alan Greenspan testified before Congress as part of the Federal Reserve’s semiannual report on monetary policy. Read More
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The Rising Yen
The U.S. dollar has depreciated 18% against the Japanese yen since August 1998. Read More
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Dollarizing Argentina
In April 1991, Argentina established a currency board to cure its chronic inflation. Read More
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Interest Rates
Interest rates at all maturities have moved up sharply since last month. Some of the increase can be traced to speculation that the Federal Reserve will increase the federal funds rate. Read More
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Construction and Monetary Policy: A View from the Sidelines
The Federal Reserve’s popularity in the business community is as high as it has been in the 15 years I’ve been in the System, and perhaps as high as ever in our 86-year history. I often hear someone say, “The Fed sure is doing a good job.” Read More
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Monetary Policy
The rate of money growth is a matter of concern because, as Milton Friedman aptly stated, “inflation is always and everywhere a monetary phenomenon.” Read More
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Interest Rates
The yield curve remains rather flat, having shown little movement since last month. At the long end, rates on 30-year bonds increased a scant six basis points; at the short end, three-month rates dropped three basis points. Read More
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The Economy in Perspective
The Policy Road Not Taken (with apologies to Robert Frost) Read More
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Monetary Policy
The autumn of 1998 was the most active season for monetary policy in several years. Read More
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Central Bank Intervention and Overnight Uncovered Interest Rate Parity
This paper considers the impact of U.S. and German central bank intervention on the risk premium in forward foreign exchange markets. Read More
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The Euro
The primary job of the modern central bank is to manufacture money. In January 1999, the new European Central Bank (ECB) began manufacturing a new money-the euro-by taking over the operations of 11 European nations' monetary systems. Read More
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Interest Rates
The new year begins with interest rates noticeably below their levels at the start of 1998. Read More
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Private Money Creation and the Suffolk Banking System
While much has been written on the history of the Suffolk Banking System, somewhat surprisingly (to our knowledge) no attempt has been made to formally model its monetary consequences. Read More
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Monetary Policy
On November 17, the Federal Open Market Committee (FOMC) again lowered its target for the federal funds rate. Read More
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Money Growth and Stock Market Volatility
Rapid money-supply growth in recent years has received scant attention in the financial press. Read More
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Interest Rates
Over the past month, interest rates on Treasury securities have shifted higher across the board. Read More
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Non-Par Banking: Competition and Monopoly in Markets for Payments Services
Much of the literature treats the existence of non-par banking as a legal matter, emphasizing the Board of Governors’ legal struggle to force non-par banks to pay Reserve banks at par. Read More
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Will Electronic Money be Adopted in the United States?
Although the cashless society has been predicted for at least twenty years, the new forms of card-based and software-based electronic money may prove to be a partial alternative to the current forms of payments. Read More
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Monetary Policy
At its September 29 meeting, the Federal Open Market Committee (FOMC) lowered the federal funds rate target to 5.25%, a decline of 25 basis points. Read More
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Interest Rates, Spreads, and Volatility
In the bond market, at least, the last few months provide strong reasons for calling 1998 “the year of the spread.” Read More
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Currency: Time for Change?
Despite the increasing usage of credit and debit cards and the emergence of various electronic payment instruments, currency remains king—at least if that title is based on volume of transactions. Read More
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Monetary Policy
The monetary base continues to grow at a rate slightly higher than its FOMC-determined provisional growth range of 5%. Read More
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Interest Rates
The yield curve has continued to move down and flatten, showing an inversion at some rates. Read More
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Monetary Policy, 1923
In 1923, the staff of the Federal Reserve Bank of Cleveland moved into a newly dedicated building with fresh responsibilities, for in the spring of that year the Federal Reserve Board had officially recognized the Banks’ Open Market Committee. Read More
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Monetary Policy
Over the past several years, the Federal Open Market Committee (FOMC) collectively has seen little basis for taking action. Read More
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Expectations, Credibility, and Time-Consistent Monetary Policy
This paper addresses the problem of multiple equilibria in a model of time-consistent monetary policy. Read More
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The Federal Reserve as an Informed Foreign-Exchange Trader
U.S. exchange-market interventions have no apparent effect on market fundamentals, but may influence expectations. Read More
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Interest Rates
All along the maturity spectrum, interest rates have moved lower in the past month. Longer rates fell the most, however, producing a noticeable flattening of the yield curve. Read More
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Global ATM Banking: Casting the Net
Twenty-five years of technological progress have transformed the way banking is done. Paychecks can be deposited, charitable contributions withdrawn, electronically. Read More
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Monetary Policy
The monetary base, including reserves and currency held by the public, grew at an annualized rate of about 4.3% in June and about 5.3% since the beginning of the year. The sweep-adjusted monetary base ... Read More
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Interest Rates
The yield curve has moved only slightly since last month, the biggest shift being a decrease of 11 basis points in the 6-month yield. Read More
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Optimal Employment of Scale Economies in the Federal Reserve's Currency Infrastructure
This paper investigates whether the Federal Reserve might lower its currency processing costs by reallocating high-speed currency sorting volume among its processing sites. Read More
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Monetary Policy
At its June 30 meeting, the Federal Open Market Committee (FOMC) left the 5.5% federal funds rate target unchanged, as it has since March 1997. Read More
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The Economy in Perspective
Rebooting Asia ... History repeats itself in the Far East, having repeated itself not long ago in Latin America. Read More
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Interest Rates
In the past several months, the yield curve has flattened noticeably, with the benchmark 10-year, 3-month and 3-year, 3-month spreads decreasing from 70 to 40 basis points and from 64 to 46 basis points. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) has acted only once in the past 29 months to change its operating target for the federal funds rate. That action—taken in March 1997—increased the intended funds rate just ¼ percentage point. Read More
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The Euro
On January 1, 1999, countries participating in the European Monetary Union will irrevocably link their currencies as a prelude to adopting a single currency, the Euro, in 2002. Read More
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Interest Rates
The yield curve remains relatively flat; short rates have moved up and long rates have moved down since last month. Read More
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Monetary Policy
Growth in the monetary aggregates was mixed last month, with the narrow measures of money slowing and the broadest aggregate, M2, expanding at a brisk 11.8% annual rate. Read More
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The Economy in Perspective
Second guessing ... With all the buzz about U.S. economic statistics in recent public discourse, one might almost believe that the ocean’s tides are now governed by the waxing and waning of the business cycle. Read More
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Interest Rates
The yield curve has shifted only slightly in the last month. At the short end, the 3-month rate has moved down just 14 basis points, while at the long end, the 30-year rate has increased only 10 basis points. Read More
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Private Money: Everything Old is New Again
It’s hard to pick up a newsmagazine or financial paper these days without reading about one of the new forms of electronic money. Read More
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Monetary Policy
The past two years have been characterized by relatively stable interest rates. Read More
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Interest Rates
The yield curve remains flat relative to its historical shape, with the benchmark 3-year, 3-month and 10- year, 3-month spreads at 40 and 44 basis points, respectively. Read More
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The Economy in Perspective
Swelling up ... We made it! The economy just completed its seventh year of expansion, entering month 85 with no sign of major trouble. Read More
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Monetary Policy
At the conclusion of its February meeting, the Federal Open Market Committee (FOMC) indicated that no action had been taken to change the intended federal funds rate. Read More
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The TED Spread
With Southeast Asia’s financial woes looming large in the minds of economists, the TED spread—the difference between interest rates on Treasury securities and Eurodollar instruments of the same maturity ... Read More
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Interest Rates
The yield curve has shifted up a bit since last month, with most of the change coming at the short end. It is also somewhat bumpier than usual, with 7-year rates above 10-year rates. Read More
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An Indonesian Currency Board?
Indonesia recently considered establishing a currency board, which would exchange rupiah notes for U.S. dollars on demand, with no restrictions. Read More
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Network Externalities: The Catch-22 of Retail Payments Innovations
For more than two decades, economists and business journalists have heralded the coming of a paperless society in which electronic payments will quickly replace the use of cash and paper checks in retail transactions. Read More
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Measuring the Rate of Technological Progress in Structures
Banking problems in the 1980s led to passage of the FDICIA (1991). Read More
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The Economy in Perspective
Extreme economics ... Like a skier barreling down a triple-black-diamond run, the U.S. economy is racing into the new year. Read More
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Monetary Policy
At its February 3 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 5.5%, where it has been since March 25, 1997. Read More
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Interest Rates
Since last month, the yield curve has flattened and shifted downward. The spread between the 3-year Treasury note and the 3-month T-bill narrowed from 43 basis points to 21 basis points. Read More
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Interest Rates in the 1920s
The prolonged bull market has renewed investors’ curiosity about the 1920s, as many recall George Santayana’s warning that those who cannot remember the past are condemned to repeat it. Read More
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Monetary Policy
At its December 16 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 5.5%. Read More
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James Madison's Monetary Economics
When he wrote "Money," Madison was a member of a Revolutionary government that was struggling to monetize a wartime deficit by issuing inconvertible paper money, and promising to establish a gold standard and redeem its paper currency in the future. Read More
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Money
This essay, written in 1779-80, concerns the relationship between money growth, government liability issues, and inflation. More than two centuries later, the same questions that engaged Madison remain vital to monetary theorists and policymakers. Read More
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Appointing the Median Voter of a Policy Board
Partisan politics and elector uncertainty generate policy uncertainty and partisan business cycles. Read More
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Interest Rates
The yield curve flattened again last month as long rates continued to drop. Read More
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Does Intervention Explain the Forward Discount Puzzle?
This article uses official 1985-91 intervention data to investigate the impact of U.S. and German central-bank interventions on the forward discount puzzle for two exchange rates-the German mark/U.S. dollar and the Japanese yen/U.S. dollar. Read More
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New Business Formation
In 1996, more than 170,000 new businesses were formed in the U.S., up 1.4% from the previous year. Read More
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Monetary Policy
At its November 12 meeting, the Federal Open Market Committee (FOMC) left the federal funds rate target unchanged at 5.5%. Read More
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Interest Rate Option Pricing with Volatility Humps
This paper develops a simple model for pricing interest rate options. Analytical solutions are developed for European claims and extremely efficient algorithms exist for tile pricing of American options. Read More
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Expectations, Credibility, and Disinflation in a Small Macroeconomic Model
We use a version of the Fuhrer-Moore model to study the effects of expectations and central bank credibility on the economy’s dynamic transition path during a disinflation. Read More
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Interest Rates
The yield curve has flattened since last month, with short rates up and long rates down. Read More
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Reliability Analysis of the Federal Reserve Automated Payments Systems
This paper proposes an analytic framework for the reliability assessment of the automated payments systems used by the Federal Reserve Banks. Read More
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The Evolution of Cash Transactions: Some Implications for Monetary Policy
This paper considers the implications of a decreasing demand for cash transactions under several monetary policy regimes. Read More
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Accelerating Money Growth: Is M2 Telling Us Something?
When things appear to be working well, there’s a natural reluctance to tinker. Read More
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The Economy in Perspective
A moment’s notice ... Those of us in the monetary policy business are used to being questioned almost daily about the meaning of a data release, a Fed official’s speech, or a financial market swing. Read More
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Monetary Policy
Since February 1996, the Federal Open Market Committee (FOMC) has changed the intended federal funds rate only once, raising it a modest 25 basis points at this year’s March meeting. Read More
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Automated Teller Machines
Over the past 20 years, the number of automated teller machines (ATMs) in the U.S. has increased almost 23-fold. In 1976, there was approximately one ATM per 13,700 households; by 1995, there was one per 807 households. Read More
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Interest Rates
The yield curve has flattened since last month, with rates falling for Treasuries with maturities of one year or longer, and rising for those of less than a year. Read More
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The Effect of Pricing on Demand and Revenue in Federal Reserve ACH Payment Processing
Because the automated clearinghouse (ACH) has been found to have lower social costs than paper checks, the Federal Reserve has been promoting more widespread use of ACH by lowering ACH processing fees. Read More
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Monetary Policy
The Federal Open Market Committee (FOMC) decided tat its September 30 meeting to let the federal funds rate stand at 5.5%, marking six months since the rate was last altered. Read More
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The Economy in Perspective
Where to, EMU? ... Many European nations have been working hard over the past several years to lower their inflation rates and trim public sector deficits. Read More
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Interest Rates
In September, the yield curve on government securities moved noticeably lower (about 20 basis points), but retained its general shape. The weekly average of the 3-month constant-maturity series moved below 5%. Read More
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Recent U.S. Intervention: Is Less More?
An analysis of the forecast value of U.S. interventions in the foreign exchange market over the past seven years, which finds that official transactions by U.S. monetary authorities generally did not seem to improve the efficiency... Read More
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Monetary Policy
At its August 19 meeting, the Federal Open Market Committee (FOMC) decided to maintain the existing degree of pressure on the federal funds rate, expecting it to remain around 5.5%. Read More
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Money, Fiscal Discipline, and Growth
History will regard the last quarter of the twentieth century as a time when the world reawakened to one of Adam Smith’s most important observations. Read More
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Interest Rates
The yield curve has steepened since the end of July, with long rates increasing about 20 basis point (b.p.) and the 3-month short rate inching up only four b.p. Read More
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Floating Exchange Rates
Since the end of the Bretton Woods fixed-exchange-rate regime, dollar exchange rates have moved in response to market forces. Isolating and explaining these forces is a task that still baffles economists. Read More
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Electronic Money
This paper will attempt to identify the issues that need to be addressed in order for stored-value cards and other electronic money systems to become a major payment mechanism in the global financial market. Read More
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Wealth, Economic Infrastructure, and Monetary Policy
Acountry’s choice of institutions profoundly affects its wealth and development. Institutions constitute a nation’s economic “infrastructure,” the framework on which enterprise is built. Read More
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Monetary Policy
The semiannual Federal Reserve System monetary policy testimony to Congress, delivered by Chairman Greenspan on July 22, along with the Board of Governors' report, summarizes the Fed's view of current economic conditions ... Read More
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Interest Rates
The yield curve has flattened since last month, with long rates falling and short rates rising. Read More
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U.S. Trade Balance
The U.S. trade deficit has widened since 1991. Over the first five months of this year, the shortfall was $48.1 billion. Our largest deficits are with Japan, China, and our NAFTA partners. Read More
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Monetary Policy
It has been more than three months since the Federal Open Market Committee (FOMC) raised the intended federal funds rate from 5 1/4% to 5 1/2%. Read More
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Money, Inflation, and Exchange Rates
Money, inflation and exchange rates are all linked, but the connections are relatively complicated. Read More
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Exchange Rate Policy
The U.S. Treasury and the Federal Reserve seem increasingly hesitant to intervene in foreign exchange markets, and for good reason. Read More
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Interest Rates
The yield curve has flattened noticeably since last month. Although rates have fallen at all maturities, longer rates have dropped, tightening up spreads. Read More
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Monetary Policy in the Cold War Era
The Soviet Union officially disbanded on December 26, 1991, one day after the resignation of Mikhail Gorbachev. Read More
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The Economy in Perspective
With a little help from our friends ... The United States continues to import more goods and services than it sends abroad, and by a wide margin. Read More
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Monetary Policy
At its May 20 meeting, the Federal Open Market Committee (FOMC) decided to maintain it's existing degree of pressure on the federal funds rate, expecting it to remain around 5.5%. Read More
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Interest Rates
Since April, interest rates have shifted downward. Read More
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Monetary Policy: A Long-Term Perspective
The financial press has given much attention to the 25-basis-point increase in the federal funds rate on March 25. Read More
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Monetary Policy
Since the Federal Open Market Committee (FOMC) announced an expected 1/4-percentage -point increase in the federal funds rate at it's March 25 meeting, short-term interest rates have changed very little. Read More
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The Daily Spin: Putting the Economy in Perspective
The Daily Spin: Putting the Economy in Perspective. Read More
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Is Noninflationary Growth an Oxymoron?
Just before the Federal Open Market Committee's (FOMC) May 20 meeting, popular opinion about the near-term future of U.S. monetary policy was summarized by John 0. Wilson, chief economist at Bank America Corp. Read More
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Interest Rates
The yield curve has steepened slightly since last month, with short rates falling and long rates rising. Read More
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Monetary Policy
Immediately after its March 25 meeting, the Federal Open Market Committee (FOMC) of the Federal Reserve System announced that it had "decided to tighten money market conditions slightly, expecting the federal funds rate ... Read More