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Owen F. Humpage
Person

Owen F. Humpage

Economist Emeritus
Department Research
Education
  • BA,
  • Economics,
  • University of Dayton,
  • 1972
  • MA,
  • Economics,
  • Miami University,
  • 1974
  • PhD,
  • Economics,
  • Case Western Reserve University,
  • 1986

Owen F. Humpage is an economist emeritus of the Research Department of the Federal Reserve Bank of Cleveland. He is currently investigating the monetary, banking, and political developments that led to the creation of the Federal Reserve System. Before his retirement, he specialized in international finance. His research focusing on international aspects of central–bank policies has appeared in the International Journal of Central Banking, the International Journal of Finance and Economics, and the Journal of Money, Credit, and Banking. Dr. Humpage also coauthored a history of US foreign–exchange operations, Strained Relations: Foreign–Exchange Operations and Monetary Policy in the Twentieth Century with Michael D. Bordo and Anna J. Schwartz.

Dr. Humpage joined the Bank as an economic analyst in 1973. He was promoted to economist in 1978 and to senior economic advisor in 2006. He retired from the Bank in June 2018. Dr. Humpage has taught at Oberlin College, Case Western Reserve University, Cleveland State University, and Baldwin-Wallace University.

A native of Cleveland, Dr. Humpage received a BA in economics from the University of Dayton, an MS from Miami University in Oxford, Ohio, and a PhD from Case Western University.

    • Working Papers

      • Working Paper
        On the Origins of the Federal Reserve System and Its Structure
        Owen F. Humpage
        08.02.2023 | WP 23-17
        The creation of the Federal Reserve System ultimately stemmed from fundamental changes in the banking industry that heightened the risks associated with shifts in the public’s liquidity preferences and that created an atmosphere of distrust between the small, traditional, country banks and the large, transforming, Wall Street banks. The severity of the Panic of 1907 became the proximate factor in the Federal Reserve’s formation. The panic, which the New York Clearing House’s slow, discriminative, and insufficient response characterized, gave credence to concerns of growing financial risks and invigorated calls for reform. The Federal Reserve’s unique structure reflects compromises reached in attempts to dampen the risks in the banking industry while easing the distrust and fears of dominance among its various stakeholders.

        Topics: Monetary policy
      • Working Paper
        Even Keel and the Great Inflation
        Victoria Consolvo Owen F. Humpage Sanchita Mukherjee
        10.23.2020 | WP 20-33
        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.

        Topics: Monetary policy
      • Working Paper
        Fiscal Dominance and US Monetary: 1940–1975
        Owen F. Humpage
        12.21.2016 | WP 16-32
        This narrative 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. The analysis suggests that three factors can help explain why the Federal Reserve compromised the attainment of its statutorily mandated monetary-policy objectives for debt-management reasons: 1) the existence of an existential threat, 2) the fear that to do otherwise would create instability in the banking sector, and 3) the vulnerability of Treasury financing operations to monetary-policy actions that existed when the Treasury did not auction its debts.

        Topics: Monetary policy
      • Working Paper
        Even Keel and the Great Inflation
        Owen F. Humpage Sanchita Mukherjee
        12.18.2015 | WP 15-32
        This working paper has been removed at the request of the authors. A new version is WP 20-33.
      • Working Paper
        The Evolution of the Federal Reserve Swap Lines since 1962
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        09.30.2014 | WP 14-14
        In this paper, we describe the evolution of the Federal Reserve’s swap lines from their inception in 1962 as a mechanism to forestall claims on US gold reserves under Bretton Woods to their use during the Great Recession as a means of extending emergency dollar liquidity. We describe the Federal Reserve’s successes and failures. We argue that swaps calm crisis situations by both supplementing foreign countries’ dollar reserves and by signaling central-bank cooperation. We show how swaps exposed the Federal Reserve to conditionality and raised fears that they bypassed the Congressional appropriations process.

        Topics: Financial policy and implementation
      • Working Paper
        Federal Reserve Policy and Bretton Woods
        Michael D. Bordo Owen F. Humpage
        08.24.2014 | WP 14-07
        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. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stop-gap devices—the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations—to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on domestic objectives and shifted responsibility for international developments to the Treasury. Removing the pressure of international considerations from Federal Reserve policy decisions made it easier for the Federal Reserve to pursue the inflationary policies of the late 1960s and 1970s that ultimately destroyed Bretton Woods. In the end, the Treasury’s stop-gap devices, which were intended to support Bretton Woods, contributed to its demise.

        Topics: Monetary policy
      • Working Paper
        Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank
        Owen F. Humpage
        03.18.2014 | WP 14-02
        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. This paper traces the Federal Reserve's emergence as a modern central bank beginning with its abandonment of monetary policy for debt-management operations during the Second World War and through the controversies that led to the Treasury-Federal Reserve accord in 1951. The accord, however, did not end the Federal Reserve's search for independence. After the accord, the Federal Reserve's view of responsibilities "within" government led it to policies—even keel and foreign exchange operations—that complicated the System's ability to conduct monetary policy.

        Topics: Financial policy and implementation
      • Working Paper
        Even Keel and the Great Inflation
        Owen F. Humpage Sanchita Mukherjee
        10.31.2013 | WP 13-15
        This working paper has been removed at the request of the authors. A new version is WP 20-33.
      • Working Paper
        Bretton Woods, Swap Lines, and the Federal Reserve’s Return to Intervention
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        11.30.2012 | WP 12-32
        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.

        Topics: Financial policy and implementation
      • Working Paper
        Epilogue: Foreign-Exchange-Market Operations in the Twenty-First Century
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        03.29.2012 | WP 12-07
        Foreign-exchange operations did not end after the United States stopped its activist approach to intervention. Japan persisted in such operations, but avoided overt conflict with its monetary policy. With the onset of the Great Recession, Switzerland has transacted in foreign exchange both for monetary and exchange-rate purposes, and key central banks have used swap facilities to extended their lender-of-last-resort functions. Developing and emerging-market economies continue to intervene, but their actions may hamper the development of their own foreign-exchange markets. China’s undervalued exchange rate is producing inflation and real appreciation, despite China’s efforts to sterilize its reserve accumulation.

        Topics: Monetary policy
      • Working Paper
        U.S. Monetary-Policy Evolution and U.S. Intervention
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        10.27.2011 | WP 11-27
        The United States all but abandoned its foreign-exchange-market intervention operations in late 1995, when they proved corrosive to the credibility of the Federal Reserve's commitment to price stability. We view this decision as the culmination of the evolution of U.S. monetary policy over the past century from a gold standard to a fiat money regime. The abandonment of intervention was necessary to secure monetary policy credibility.

        Topics: Monetary policy
      • Working Paper
        The Federal Reserve as an Informed Foreign-Exchange Trader: 1973-1995
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        09.01.2011 | WP 11-18
        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. Using a set of standard criteria, we show that approximately 60 percent of all U.S. foreign-exchange interventions between 1973 and 1995 were successful in this sense. This percentage, however, is no better than random. U.S. intervention sales and purchases of foreign exchange were incapable of forecasting dollar appreciations or depreciations. U.S. interventions, however, were associated with more moderate dollar movements in a manner consistent with leaning against the wind, but only about 22 percent of all U.S. interventions conformed to this pattern. We also found that the larger the size of an intervention, the greater was its probability of success, although some interventions were inefficiently large. Other potential characteristics of intervention, notably coordination and secrecy, did not seem to influence our success rates.

        Topics: Monetary policy
      • Working Paper
        On the Evolution of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        06.22.2011 | WP 11-13
        Attitudes about foreign-exchange-market intervention in the United States evolved in tandem with views about monetary policy as policy makers grappled with the perennial problem of having more economic objectives than independent instruments with which to achieve them. This paper—the introductory chapter to our history of U.S. foreign exchange market intervention—explains this thesis and summarizes our conclusion: The Federal Reserve abandoned frequent foreign-exchange-market intervention because, rather than providing a solution to the instruments-versus-objectives problem, it interfered with the Federal Reserve’s ability to credibly commit to low and stable inflation. This chapter also provides a theoretical discussion of intervention, background on U.S. institutions for conducting intervention, and a roadmap to the remainder of our book.

        Topics: Monetary policy
      • Working Paper
        US Intervention during the Bretton Woods Era: 1962-1973
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        04.11.2011 | WP 11-08
        By the early 1960s, outstanding U.S. dollar liabilities began to exceed the U.S. gold stock, suggesting that the United States could not completely maintain its pledge to convert dollars into gold at the official price. This raised uncertainty about the Bretton Woods parity grid, and speculation seemed to grow. In response, the Federal Reserve instituted a series of swap lines to provide central banks with cover for unwanted, but temporary accumulations of dollars and to provide foreign central banks with dollar funds to finance their own interventions. The Treasury also began intervening in the market. The operations often forestalled gold losses, but in so doing, delayed the need to solve Bretton Woods’ fundamental underlying problems. In addition, the institutional arrangements forged between the Federal Reserve and the U.S. Treasury raised important questions bearing on Federal Reserve independence.

        Topics: Monetary policy
      • Working Paper
        U.S. Intervention and the Early Dollar Float: 1973-1981
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        12.09.2010 | WP 10-23
        The dollar’s depreciation during the early floating rate period, 1973–1981, was a symptom of the Great Inflation. In that environment, sterilized foreign exchange interventions were ineffective in halting the dollar’s decline, but they showed a limited ability to smooth dollar movements. Only after the Volcker FOMC changed its monetary-policy approach and demonstrated a willingness to maintain a disinflationary stance despite severe economic weakness and high unemployment did the dollar begin a sustained appreciation. Also contributing to the ineffectiveness of the interventions was the Desk’s method of operation. The small, covert interventions, particularly prior to 1977, seemed inconsistent with an expectations channel of influence, and financing intervention with short-term borrowed funds seemed inconsistent with a portfolio-balance channel of influence. The Desk never clearly articulated an intervention transmission mechanism. The episode indicated the shortcomings of sterilized intervention and led to their cessation in April 1981.
      • Working Paper
        U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        07.02.2010 | WP 10-07
        The Federal Reserve abandoned foreign-exchange-market intervention because it conflicted with the System’s commitment to price stability. By the early 1980s, economists generally concluded that, absent a portfolio-balance channel, sterilized foreign-exchange-market intervention did not provide central banks with a mechanism for systematically influencing exchange rates independent of their monetary policies. If intervention were to have anything other than a fleeting, hit-or-miss effect on exchange rates, monetary policy had to support it. Exchange rates, however, often responded to U.S. monetary-policy initiatives, so intervention to offset or reverse those exchange-rate responses can seem a contrary policy move and can create uncertainty about the strength of the System’s commitment to price stability. That the U.S. Treasury maintained primary responsibility for foreign-exchange intervention only compounded this uncertainty. In addition, many FOMC participants feared that swap drawings and warehousing could contravene the Congressional appropriations process and, therefore, potentially pose a threat to System independence, a necessary condition for monetary-policy credibility.
      • Working Paper
        Option Prices, Exchange Market Intervention, and the Higher Moment Expectations Channel: A User’s Guide
        Gabriele Galati Owen F. Humpage Patrick Higgins William Melick
        12.04.2006 | WP 06-18
        This paper investigates how market structure affects efficiency and several dimensions of liquidity in an asset market. To this end, we generalize the search-theoretic model of financial intermediation of Darrell Duffie et al. (2005) to allow for entry of dealers and unrestricted asset holdings.
      • Working Paper
        Bretton Woods and the U.S. Decision to Intervene in the Foreign-Exchange Market, 1957-1962
        Michael D. Bordo Owen F. Humpage Anna Schwartz
        08.01.2006 | WP 06-09
        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. We discuss the events leading up to these interventions, the institutional arrangements developed for that purpose, and the controversies that ensued. Although these interventions forestalled a loss of U.S. gold reserves, in the end, they only delayed more fundamental adjustments and, in that respect, were a failure.
      • Working Paper
        Swedish Intervention and the Krona Float, 1993-2002
        Owen F. Humpage Javiera Ragnartz
        12.01.2005 | WP 05-14
        Using a set of standard success criteria, we show that Riksbank foreign-exchange interventions between 1993 and 2002 lacked forecast value; that is, the observed number of successes was not significantly greater—and usually substantially smaller—than the number one would anticipate given the martingale nature of exchange-rate movements. Under some success criteria, the Riksbank exhibited negative forecast value, implying that the market could have profited by taking a position opposite that of the bank. Moreover, the likelihood of success was independent of such conditioning factors as the amount of a transaction, the time lapses between interventions, or the number of foreign currencies involved. As such, Riksbank intervention could not operate through an expectations or signaling channel.
      • Working Paper
        Government Intervention in the Foreign Exchange Market
        Owen F. Humpage
        11.15.2003 | WP 03-15
        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. The survey emphasizes that intervention is intended to provide monetary authorities with an means of influencing their exchange rates independent from monetary policy, and tends to evaluate theoretical channels and empirical results from this perspective.
      • Working Paper
        An Analysis of Japanese Foreign Exchange Interventions
        Alain P. Chaboud Owen F. Humpage
        10.09.2003 | WP 03-09
        The effectiveness of Japanese interventions over the past decade depended in large part on the frequency and size of the transactions. Prior to June 1995, Japanese interventions only had value as a forecast that the previous day's yen appreciation or depreciation would moderate during the current day. After June 1995, Japanese purchases of dollars had value as a forecast that the yen would depreciate. Probit analysis confirms that large, infrequent interventions, which characterized the later period, had a higher likelihood of success than small, frequent interventions.
      • Working Paper
        Do Energy-Price Shocks Affect Core-Price Measures?
        Owen F. Humpage Eduard Pelz
        11.01.2002 | WP 02-15
        This paper investigates the relationship between energy-price shocks and three core measures of inflation in a vector autoregression model that incorporates measures of monetary policy and inflation expectations. The sample set includes data at monthly frequencies from 1980 through 2000. We find that that positive energy-price shocks have significant, though small, effects on all core price measures after a lag of 12 to 18 months, but that negative shocks have no discernable impact. The results suggest that relative energy-price changes do not distort the inflation signals that standard core-price measures provide.
      • Working Paper
        Sterilized Intervention, Nonsterilized Intervention, and Monetary Policy
        Ben R. Craig Owen F. Humpage
        07.01.2001 | WP 01-10
        Sterilized intervention is generally ineffective. Countries that conduct monetary policy using an overnight, interbank rate as an intermediate target automatically sterilize their interventions.
      • Working Paper
        Coalitions, Power, and the FOMC
        Joseph G. Haubrich Owen F. Humpage
        05.01.2001 | WP 01-03
        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.
      • Working Paper
        Intervention as Information: A Survey
        Richard Baillie Owen F. Humpage William P. Osterberg
        12.01.1999 | WP 99-18
        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.
      • Working Paper
        The Federal Reserve as an Informed Foreign-Exchange Trader
        Owen F. Humpage
        09.01.1998 | WP 98-15
        U.S. exchange-market interventions have no apparent effect on market fundamentals, but may influence expectations.
      • Working Paper
        U.S. Intervention: Assessing the Probability of Success
        Owen F. Humpage
        09.01.1996 | WP 96-08
        This paper estimates the unconditional and conditional probabilities that U.S. interventions successfully smooth short-term mark-dollar and yen-dollar exchange rates.
      • Working Paper
        New Results on the Impact of Central-Bank Intervention on Deviations from Uncovered Interest Parity
        Owen F. Humpage William P. Osterberg
        04.01.1992 | WP 92-07
        Germany, Japan, and the United States continue to view foreign exchange intervention as an effective instrument, although the mechanism through which it operates is unclear.
      • Working Paper
        Post-Louvre Intervention: Did Target Zones Stabilize the Dollar?
        Richard Baillie Owen F. Humpage
        02.01.1992 | WP 92-03
        At their Louvre meeting in February 1987, the Group of Seven (G7) countries agreed to stabilize dollar exchange rates.
      • Working Paper
        Intervention and the Foreign Exchange Risk Premium: An Empirical Investigation of Daily Effects
        Owen F. Humpage William P. Osterberg
        08.01.1990 | WP 90-09
        Currency markets have witnessed a sharp increase in government intervention since 1985.
      • Working Paper
        Intervention, Exchange-Rate Volatility, and the Stable Paretian Distribution
        Michael L. Bagshaw Owen F. Humpage
        07.01.1986 | WP 86-08
        A look at whether the United States’ decision to cease intervention after March 1981 had a perceptible influence on the day-to-day behavior of exchange rates, using the stable paretian distribution.
      • Working Paper
        Dollar Intervention and the Deutschemark-Dollar Exchange Rate: A Daily Time-Series Model
        Owen F. Humpage
        09.01.1984 | WP 84-04
        This paper develops a simultaneous time-series model to investigate the daily interactions between official exchange-market intervention and movements in the deutsche mark-dollar exchange rate, from November 2, 1978, to October 31, 1979.

    • Economic Commentaries

      • Economic Commentary
        Warehousing: A Historical Lesson in Central Bank Independence
        Owen F. Humpage
        08.11.2017 | EC 2017-12
        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.

        Topics: Monetary policy
      • Economic Commentary
        The Fed’s Yield-Curve-Control Policy
        Owen F. Humpage
        11.29.2016 | EC 2016-15
        The recent global financial crisis left governments in many advanced countries with very heavy debt burdens and their central banks with huge portfolios of government bonds. With many central banks today still facing policy rates that are uncomfortably close to zero, some may follow the example of Japan, which recently added a new long-term interest-rate target to its short-term target to give itself “yield-curve control.” The Federal Reserve’s foray into similar territory around the Second World War suggests that combining yield-curve control with quantitative easing when government borrowing needs are substantial can create constraints on monetary policy that are not easily removed.

        Topics: Monetary policy
      • Economic Commentary
        Paper Money and Inflation in Colonial America
        Owen F. Humpage
        05.13.2015 | EC 2015-06
        Inflation is often thought to be the result of excessive money creation—too many dollars chasing too few goods. While in principle this is true, in practice there can be a lot of leeway, so long as trust in the monetary authority’s ability to keep things under control remains high. The American colonists’ experience with paper money illustrates how and why this is so and offers lessons for the modern day.

        Topics: Monetary policy, Inflation
      • Economic Commentary
        Cooperation, Conflict, and the Emergence of a Modern Federal Reserve
        Owen F. Humpage
        04.17.2014 | EC 2014-07
        The Federal Reserve System is a model of an independent central bank, with the authority to resist political pressure and act in the long-term best economic interest of the country. But this has not always been the case. In the past—and not too distant past at that—US monetary policy has frequently yielded to other governmental requirements. Even for the modern Federal Reserve, independence is a nuanced, mutable and, ultimately, fragile concept, but one that is essential to maintain.
      • Economic Commentary
        The Limitations of Foreign-Exchange Intervention: Lessons from Switzerland
        Owen F. Humpage
        10.18.2013 | EC 2013-13
        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. Switzerland’s recent experience goes a long way to illustrate why: Foreign-exchange intervention did not afford the Swiss National Bank with a means of systematically affecting the franc independent of Swiss monetary policy, and it left the Bank exposed to foreign-exchange losses. To affect exchange rates, central banks must change their monetary policies.
      • Economic Commentary
        Communication, Credibility, and Price Stability: Lessons Learned from Japan
        Owen F. Humpage
        07.02.2012 | EC 2012-09
        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. While there are many differences between the economic challenges Japan has been struggling with in the past decade and those facing U.S. and European central bankers now, we can learn a great deal about combating deflation from Japan’s experiences.
      • Economic Commentary
        Do Commodity Prices Signal Inflation?
        Owen F. Humpage
        05.24.2011 | EC 2011-08
        Do the rising commodity prices we have seen in recent years reflect basic supply-and-demand developments in various commodity markets, or are they the first signs of inflation? In practice, it’s not always easy to tell the difference—for the public or policymakers—but fundamentally different they are. Central banks can do nothing about relative commodity-price pressures, since central banks do not produce commodities. Likewise, commodity-price shocks do not impair the ability of central banks to control inflation in principle, but they can greatly complicate the task.
      • Economic Commentary
        The Foreign Savings Glut: Inordinate Savers or Thriving Traders?
        Owen F. Humpage
        05.24.2010 | EC 2010-03
        In the years prior to our recent economic crisis, foreign savings poured into the United States. Did foreign traders who happened to acquire dollars from American trade defi cits merely choose to keep these funds in dollar-denominated assets? Or, did foreigners decide to increase their savings inordinately and place those funds in dollar-denominated assets? The answer is key to the debate about the sources of liquidity that paved the way to our recent economic problems.
      • Economic Commentary
        Replacing the Dollar with Special Drawing Rights - Will It Work This Time?
        Owen F. Humpage
        05.06.2009 | EC 3/1/2009
        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. Created by the IMF way back in 1969 for that purpose, SDRs never caught on. While SDRs may be declared an official international reserve asset today, they are not likely to become the world’s key international currency anytime soon. In the meantime, countries in China’s current predicament—acquiring more dollars than they think prudent—could avoid such risks in the future by allowing their currencies to appreciate.

        Topics: International economics
      • Economic Commentary
        A New Role for the Exchange Stabilization Fund
        Owen F. Humpage
        08.01.2008 | EC 8/1/2008
        Recently, the U.S. Treasury announced a new, temporary insurance program for U.S. money-market mutual funds. To guarantee payment of these funds’ liabilities, the Treasury will use the assets of its Exchange Stabilization Fund. Created in the 1930s to stabilize the exchange value of the dollar, it has been tapped on occasion to supply loans to foreign countries in financial distress. This latest use of ESF assets is unlike anything the Fund has been used for before.

        Topics: Monetary policy, Financial stability
      • Economic Commentary
        Rising Relative Prices or Inflation: Why Knowing the Difference Matters
        Owen F. Humpage
        06.01.2008 | EC 6/1/2008
        Almost everyone uses the word inflation to refer to any increase in prices, but it ought to be reserved for a just one kind of price increase. True inflation has a different cause—and a different cure—than the price increases of goods and services caused by constantly changing supply and demand conditions. The Federal Reserve can and should act to control inflation, but when relative-price changes are putting pressure on businesses’ balance sheets and consumers’ pocketbooks, the Fed can do little.

        Topics: Inflation
      • Economic Commentary
        Global Risks to U.S. Monetary Policy
        Owen F. Humpage
        05.15.2007 | EC 5/15/2007
        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. This Commentary develops a key macroeconomic concern that emerged from our conversations.
      • Economic Commentary
        Have International Developments Lowered the Neutral Rate?
        Owen F. Humpage
        12.01.2005 | EC 12/1/2005
        One way to think about monetary policy is in terms of a neutral federal funds rate, one that exerts neither inflationary nor deflationary pressures. Recent declines in worldwide investment, coupled with the growing globalization of financial markets suggest that the neutral rate may be lower than the current stance of monetary policy and the stage of the business cycle may lead one to believe.
      • Economic Commentary
        Nondeliverable Forwards: Can We Tell Where the Renminbi Is Headed?
        Patrick Higgins Owen F. Humpage
        09.01.2005 | EC 9/1/2005
        Since the early 1990s, international banks have been offering non-deliverable forward (NDF) contracts to clients who need to hedge exposures in currencies of emerging-market economies. Many also use the exchange rate on these contracts as a best guess of where the emerging market currency is headed. The exchange rates on NDFs, however, likely embody a substantial risk premium that interferes with forecasting accuracy.
      • Economic Commentary
        The Chinese Renminbi: What’s Real, What’s Not
        Patrick Higgins Owen F. Humpage
        08.15.2005 | EC 8/15/2005
        China’s recent devaluation and liberalization of its exchange-rate policies will, at best, have only a temporary impact on its trade competitiveness with the United States.
      • Economic Commentary
        A Hitchhiker's Guide to the U.S. Current Account Problem
        Owen F. Humpage
        10.01.2004 | EC 10/1/2004
        The United States has run a current account deficit for the past 20 years, and, as a consequence, foreigners now hold unprecedented financial claims on the United States. At some point, foreigners will become reluctant to hold these claims and will set into motion a series of corrective economic adjustments. This Economic Commentary describes the interaction between our current account deficits and the broader economy and explains the problem that continued deficits pose.
      • Economic Commentary
        On the Rotation of the Earth, Drunken Sailors, and Exchange Rate Policy
        Owen F. Humpage
        02.15.2004 | EC 2/15/2004
        A growing number of observers seem to believe that official foreign exchange intervention offers a useful tool for managing the dollar’s descent. In particular situations, official transactions can sometimes produce temporary changes in exchange rates, but intervention does not permit countries to avoid or substantially modify trends in the movements of the exchange rates. At best, intervention is of very limited value.
      • Economic Commentary
        Foreign Exchange and the Liquidity Trap
        Owen F. Humpage William Melick
        10.01.2003 | EC 10/1/2003
        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. Economists refer to this situation as a liquidity trap. Do exchange rate targets and foreign exchange operations, as some have suggested, offer a way to escape such a trap?
      • Economic Commentary
        Do Energy Price Spikes Cause Inflation?
        Owen F. Humpage Eduard Pelz
        04.01.2003 | EC 4/1/2003
        Many people mistakenly believe that a sharp rise in the price of energy is necessarily inflationary. They fail to understand that energy prices adjust to the demand and supply of energy, whereas inflation responds to thed emand and supply of money. This Economic Commentary explains that the Federal Reserve can do nothing about relative energy prices, but it can determine how relative energy price shocks are reflected in the overall level of prices. Over the last 20 years, the inflationary consequences of energy price shocks, while significant, have been fairly subdued.
      • Economic Commentary
        Money, Manufacturing, and the Strong Dollar
        Owen F. Humpage
        07.01.2001 | EC 7/1/2001
        U.S. firms are facing tough international competition, and the U.S. trade deficit has grown to a level that some find alarming. Why doesn’t the United States respond by easing monetary policy to lower the dollar’s exchange rate and reduce the price of U.S. goods in foreign markets? This Commentary argues that monetary policy is incapable of improving the competitive position of U.S. manufacturing through exchange rate manipulation. The temporary gains monetary easing might achieve through a nominal dollar depreciation would be offset by higher inflation and decreased foreign investment.
      • Economic Commentary
        Foreign Economic Growth and the Dollar
        Owen F. Humpage
        09.01.2000 | EC 9/1/2000
        Analysts caution that rapid foreign economic growth could induce a depreciation of the dollar, as international investors diversify their portfolios for higher returns abroad. Although we cannot establish a simple relationship between foreign growth and the dollar, we can conclude that if a desire to diversify out of dollars lies dormant among investors, faster growth abroad may stir it.
      • Economic Commentary
        Do Imports Hinder or Help Economic Growth?
        Owen F. Humpage
        03.15.2000 | EC 3/15/2000
        Although Americans spent $1.3 trillion on foreign goods and services last year, many regard imports with hostility, preferring to “buy American. ”But do imports really hurt the American economy? This Economic Commentary argues they do not. If anything, imports promote growth.
      • Economic Commentary
        Why Intervention Rarely Works
        Owen F. Humpage William P. Osterberg
        02.01.2000 | EC 2/1/2000
        Foreign-exchange-market intervention is generally ineffective when undertaken independent of monetary policy. But when undertaken as a goal of monetary policy, exchange-rate management can compromise price stability. This Economic Commentary explains the difficulties of implementing an intervention policy.
      • Economic Commentary
        Dollarization and Monetary Sovereignty: The Case of Argentina
        David Altig Owen F. Humpage
        09.15.1999 | EC 9/15/1999
        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.
      • Economic Commentary
        Is the Current-Account Deficit Sustainable?
        Owen F. Humpage
        10.15.1998 | EC 10/15/1998
        In 1987, after six straight years of large current-account deficits, the United States became a net debtor country.
      • Economic Commentary
        A Hitchhiker’s Guide to Understanding Exchange Rates
        Owen F. Humpage
        01.01.1998 | EC 1/1/1998
        Each day, more than $1.2 trillion worth of foreign exchange changes hands around the globe, an amount that far exceeds the daily value of world trade.
      • Economic Commentary
        Monetary Policy and Real Economic Growth
        Owen F. Humpage
        12.01.1996 | EC 12/1/1996
        The media frequently take central banks to task for failing to encourage real economic growth.
      • Economic Commentary
        Are Successful Interventions Random Events?
        Owen F. Humpage
        03.01.1996 | EC 3/1/1996
        From time to time, the United States enters the foreign exchange market in an attempt to influence the behavior of exchange rates.
      • Economic Commentary
        A Mexican Currency Board?
        Owen F. Humpage
        03.15.1995 | EC 3/15/1995
        A lack of confidence in the peso’s purchasing power was fundamental to Mexico’s recent currency crisis and remains central to the nation’s convalescence.
      • Economic Commentary
        Are the Japanese to Blame for Our Trade Deficit?
        Owen F. Humpage
        06.15.1994 | EC 6/15/1994
        Amid charges and countercharges of unfair competition and trade restrictions attending the recent U.S.-Japanese trade dispute, many commentators have lost sight of important variations in these nations’ saving and investment behavior.
      • Economic Commentary
        Central Bank Independence
        Owen F. Humpage
        04.01.1994 | EC 4/1/1994
        To many Americans, the idea that a central bank should make crucial economic policy decisions with no direct political accountability either to the citizenry or to their elected representatives seems the antithesis of democracy.
      • Economic Commentary
        Do Deficits Matter?
        Owen F. Humpage
        06.15.1993 | EC 6/15/1993
        The federal debt keeps rising, like a monster from the sea, and now threatens to take a $ 12,700 bite out of each of us.
      • Economic Commentary
        Should the United States Hold Foreign Currency Reserves?
        Gerald Anderson Owen F. Humpage
        08.01.1992 | EC 8/1/1992
        The United States holds a $43 billion portfolio of foreign exchange reserves— mostly German marks and Japanese yen — to defend against unwanted depreciations of the dollar in the world’s currency markets.
      • Economic Commentary
        Exchange-Market Intervention and U.S. Monetary Policy
        Owen F. Humpage
        10.01.1991 | EC 11/1/1991
        The United States often buys or sells foreign currencies, hoping to influence dollar’exchange rates. The most visible result of these transactions, however, seems to be a continuing debate about their appropriateness.
      • Economic Commentary
        A Critique of Monetary Protectionism
        W. Lee Hoskins Owen F. Humpage
        05.15.1990 | EC 5/15/1990
        Despite the political appeal of exchange-market manipulations, monetary protectionism is unsupported by economic arguments. Manipulation of nominal exchange rates has no permanent effect on the terms of trade and risks inflation.
      • Economic Commentary
        Intervention and the Dollar
        Owen F. Humpage
        09.01.1988 | EC 9/1/1988
        Does U.S. intervention have a lasting effect on the foreign-exchange value of the dollar that is independent of monetary policy actions?
      • Economic Commentary
        Debt Repayment and Economic Adjustment
        Owen F. Humpage
        06.01.1988 | EC 6/1/1988
        The international debt situation involves questions about financial arrangements and about resource adjustments.
      • Economic Commentary
        Requirements for Eliminating the Trade Deficit
        Owen F. Humpage
        04.01.1987 | EC 4/1/1987
        If the United States is to eliminate its external deficit, it must satisfy certain basic economic conditions with respect to its private savings, private investment, and total government budget deficit.
      • Economic Commentary
        Should We Intervene in Exchange Markets?
        Owen F. Humpage
        02.01.1987 | EC 2/1/1987
        The Group of Five countries (France, Germany, Japan, the United Kingdom and the United States), plus Canada, met in Paris on February 21 and 22, seeking ways to eliminate huge trade imbalances in the United States, Japan and Germany.
      • Economic Commentary
        Target Zones for Exchange Rates?
        Owen F. Humpage Nicholas V. Karamouzis
        08.01.1986 | EC 8/1/1986
        In recent years, growing dissatisfaction with the levels and the volatility of dollar exchange rates has led to calls for greater coordination of economic policies among nations and for an investigation into alternative exchange-rate systems.
      • Economic Commentary
        Should We Be Concerned About the Speed of the Depreciation?
        Owen F. Humpage
        03.15.1986 | EC 3/15/1986
        Over the past 12 months, the dollar has depreciated approximately 30 percent on a trade-weighted average basis against the currencies of our major trading partners.
      • Economic Commentary
        A Correct Value for the Dollar?
        Owen F. Humpage Nicholas V. Karamouzis
        01.01.1986 | EC 1/1/1986
        The dollar’s rapid appreciation in foreign-exchange markets between mid- 1980 and February 1985 greatly reduced the international competitiveness of many U.S. industries.
      • Economic Commentary
        The Dollar in the Eighties
        Owen F. Humpage Nicholas V. Karamouzis
        09.01.1985 | EC 9/1/1985
        Since mid-1980, the dollar has experienced an unprecedented appreciation in foreign-exchange markets. On a trade-weighted basis, the dollar appreciated 77 percent from its low in mid- 1980 to its most recent peak in February 1985.

        Topics: Monetary policy, International economics
      • Economic Commentary
        Will Taxing Imports Help?
        Michael F. Bryan Owen F. Humpage
        03.15.1985 | EC 3/15/1985
        The United States is currently experiencing the strongest economic recovery since the Korean War, with virtually no increase in the rate of inflation.
      • Economic Commentary
        The Costs of a Protectionist Cure
        Michael F. Bryan Owen F. Humpage
        07.30.1984 | EC 7/30/1984
        In recent years, many ailing US. industries have blamed their ill health on foreign competition and have sought a cure in limiting the flow of imports.
      • Economic Commentary
        The International Debt Situation
        Owen F. Humpage
        01.03.1984 | EC 1/1/1984
        The precarious international debt situation clouds the economic outlook, worrying bank regulators and complicating international commerce.
      • Economic Commentary
        Exchange Rates and U.S. Prices
        Gerald Anderson Owen F. Humpage
        04.18.1983 | EC 4/18/1983
        Between October 1980 and November 1982, the U.S. dollar appreciated substantially in foreign-exchange markets.
      • Economic Commentary
        Do Deficits Cause Inflation?
        Owen F. Humpage
        11.01.1982 | EC 11/1/1982
        When the Reagan administration first took office, it forecast federal-budget deficits of $45 billion for fiscal year (FY) 1982 and $23 billion for FY 1983, and it projected a balanced budget by FY 1985.
      • Economic Commentary
        Military Spending and the Economic Outlook
        Michael F. Bryan Owen F. Humpage
        07.27.1981 | EC 7/27/1981
        The United States is embarking on an unprecedented increase. in peacetime military spending. The program has prompted heated discussions about the implications of defense spending for real output, employment, and prices.
      • Economic Commentary
        Does the Federal Government Spend Too Much?
        Owen F. Humpage
        02.09.1981 | EC 2/9/1981
        The Reagan administration has set itself to the herculean task of reducing the growth of federal spending.
      • Economic Commentary
        State and Local Budgets during Business Contractions
        Owen F. Humpage
        08.25.1980 | EC 8/25/1980
        The steepness of the second-quarter decline in real economic activity and the prospects for a slow recovery from the current recession with little relief from inflation have raised concerns about the financial health of state and local governments.
      • Economic Commentary
        Fiscal 1981 Budget Recommendations
        Owen F. Humpage
        02.25.1980 | EC 2/25/1980
        The president sent his budget recommendations for fiscal year (FY) 1981 to Congress on January 29, 1980. Outlays are expected to equal $615.8 billion in FY 1981, up from $563.6 billion in the current fiscal year.

    • Ask the Expert

    • Policy Discussion Papers

      • Policy Discussion Papers
        Walking on a Fence: Brazil's Public-Sector Debt
        Owen F. Humpage Amy Higgins
        02.01.2004 | No. 6
        Brazil is walking on a fence between sustainable and unsustainable public-debt dynamics. How it treads could affect not only its own economic prosperity but that of its neighbors, emerging markets in general, and U.S. financial institutions in particular. Relatively small improvements in Brazilian economic conditions and a continuation of that country’s recent fiscal improvements could push Brazil in the right direction, particularly if the dollar continues to depreciate.
      • Policy Discussion Papers
        An Incentive-Compatible Suggestion for Seigniorage Sharing with Dollarizing Countries
        Owen F. Humpage
        06.01.2002 | No. 4
        Sixteen countries now give the U.S. dollar legal-tender status. Although dollarizing can help emerging market countries gain monetary credibility and avoid currency crisis, many do not want to give up the seigniorage revenues associated with issuing their own fiat currency. This article offers a proposal for seignoirage sharing.
      • Policy Discussion Papers
        International Financial Flows and the Current Business Expansion
        Owen F. Humpage
        04.01.2001 | No. 2
        Since 1992, the United States has enjoyed sustained, rapid economic expansion characterized by rising labor force participation, booming net investment spending for information equipment and computer software, and strong productivity growth.

    • Forefront

    • Strained Relations–US Monetary Policy and Foreign Exchange Operations in the Twentieth Century. With Michael D. Bordo and Anna J. Schwartz. Chicago–University of Chicago Press, 2015.
    • Current Federal Reserve Policy under the Lens of Economic History (editor). New York–Cambridge University Press,2015.
    • “The Federal Reserve as an Informed Foreign Exchange Trader–1973-1995.” With Michael D. Bordo and Anna J. Schwartz. International Journal of Central Banking, 2012 (March).
    • “The Historical Origins of U.S. Exchange Market Intervention Policy.” With Michael D. Bordo and Anna J. Schwartz. International Journal of Finance and Economics, 2007, (April).
    • “Option Prices, Exchange Market Intervention, and the Higher Moments Expectations Channel–A User’s Guide.” With Gabrielle Galati, Patrick Higgins, and William Melick. International Journal of Finance and Economics, 2007 (April).
    • “The Myth of a Strong-Dollar Policy.” With Ben Craig. Cato Journal, 2003 (Winter).
    • “Global Monetary Integration, Introduction–Context, Issues, and Contributions.” With Marco Del Negro, Alejandro Hernández-Delgado, and Elisabeth Huybens. Journal of Money, Credit, and Banking, 2001 (May).
    • “Intervention as Information–A Survey.” With Richard T. Baillie and William P. Osterberg. Journal of International Financial Markets, Institutions, and Money, 2000 (December).
    • “The United States as an Informed Foreign-Exchange Speculator.” Journal of International Financial Markets, Institutions, and Money, 2000 (December).
    • “US Intervention–Assessing the Probability of Success.” Journal of Money, Credit, and Banking, 1999 (November).
    • “Intervention and the Foreign Exchange Risk Premium–An Empirical Investigation of Daily Effects.” With William P. Osterberg. Global Finance Journal, 1992, 3(1)–23–50.
    • “Avoiding Monetary Protectionism–The Role of Policy Coordination.” With W. Lee Hoskins. Cato Journal, 1990, 10(2).

  • Book Chapters

    • “Intervention and the Dollar’s Decline.” In Foreign Exchange Intervention–Objectives and Effectiveness., edited by Silvester C. W. Eijffinger, 277–292. Edward Elgar–London 1999.
    • “Book Review–Russian Currency and Finance, A Currency Board Approach to Reform.” Journal of Economic Literature, 1996 (December).

    Other Articles

    • “Currency Wars–Lessons from the US Experience–1973-95.” With Michael D. Bordo. Vox.eu, 2011 (October 3).
    • “Will Special Drawing Rights Supplant the Dollar?” Vox.eu, 2009 (May 8).