November 24, 2013
Forward rates and monetary tightening
The Federal Reserve has been trying hard to communicate that it intends to keep short-term interest rates low for quite some time. The market seems to have embraced the message.
November 10, 2013
Summarizing monetary policy
Before 2008, U.S. monetary policy was primarily conducted in terms of a target set by the Federal Reserve for the fed funds rate, which is the interest rate a bank pays to borrow funds overnight from other banks. A large academic literature used the fed funds rate as a summary of monetary policy, looking at its correlations in dynamic regressions with other variables of macroeconomic interest. But the fed funds rate has been stuck near zero for the last 5 years, and will likely be replaced by an alternative policy focus even once we exit the zero lower bound. Economic researchers face not just the difficulty of summarizing what the Fed has been doing in the current and future environment, but also the practical challenge of how to update their historical regressions to try to describe the full set of historical data along with the new experience in a coherent way. Here I describe a new research paper that suggests one solution to these problems.
October 27, 2013
Why isn't inflation lower?
With so much slack in the economy and so many Americans still looking for jobs, why hasn't inflation been falling further? University of Texas Professor Olivier Coibion and Berkeley Professor Yuriy Gorodnichenko propose an answer in an interesting new research paper.
October 20, 2013
Estimates of the effects of the Fed's large-scale asset purchases
I attended a conference this weekend on lessons from the financial crisis for monetary policy. Among many interesting presentations, Federal Reserve Bank of San Francisco President John Williams provided updated estimates on the effectiveness of large-scale asset purchases and forward guidance.
October 09, 2013
Yellen it is
I applaud President Obama for choosing the best person to be the next chair of the Federal Reserve. And I thank Governor Yellen for her willingness to serve the country.
September 29, 2013
Who's afraid of the big bad taper?
Those of us who believed that the Fed's program of large-scale asset purchases had only a modest effect on long-term interest rates seem to have some explaining to do.
September 16, 2013
Harvard Professor Larry Summers yesterday requested that his name be withdrawn from consideration for next chairman of the Federal Reserve. Let me outsource to a few others for comments.
September 10, 2013
Economists supporting Janet Yellen
Econbrowser readers know that I feel that Janet Yellen would be an excellent choice for the next chair of the Federal Reserve. For those of you who feel the same way, I call your attention to an open letter of support from economists that you could sign.
If you are a professional economist who lives and/or works in the United States and you would like to join in signing this open letter, please send your name, title, and affiliation to YellenLetter@iwpr.org.
September 04, 2013
Quantitative and Credit Easing vs. Forward Guidance
Domestic Impacts and Cross-Border Impacts Contrasted
August 06, 2013
Guest Contribution: "(Taylor) Rules versus Discretion"
Today, we’re fortunate to have Alex Nikolsko-Rzhevskyy, Assistant Professor of Economics at Lehigh University, David Papell and Ruxandra Prodan, Professor and Clinical Assistant Professor of Economics at the University of Houston, as Guest Contributors.
August 04, 2013
More on the next Federal Reserve chair
July 28, 2013
The case for Janet Yellen as Federal Reserve chair
I wanted to express some of the reasons why I feel that Janet Yellen would be an outstanding choice to head the Federal Reserve.
July 24, 2013
Prescience, 2007 edition
Having coauthored an entire book on the financial crisis of 2008 (Lost Decades, with Jeffry Frieden) I think that one of the most important qualities for a policymaker is the ability to look forward, and assess potential dangers and understand why those dangers arise. Looking back to 2007, it's of interest to see who foresaw the impact of adverse feedback loops in the financial system as risk was repriced.
June 30, 2013
The all-powerful Fed
The conventional wisdom is that the big jump in interest rates since the beginning of May is the result of a poorly conceived or poorly communicated shift in policy by the U.S. Federal Reserve. The conventional wisdom is wrong.
June 22, 2013
The end of low interest rates
The yield on 10-year U.S. Treasury securities averaged 1.8% during 2012, the lowest levels in 60 years. But that episode may now be behind us.
June 16, 2013
It's not just the Fed
The yield on 10-year U.S. Treasuries has jumped 50 basis points since the start of May, leading some to speculate that the market is already starting to price in anticipation of an end to the Fed's bond-buying program. There may be some truth to that, but it's only part of the story.
May 22, 2013
Bernanke says no change for now
In testimony before Congress today, Bernanke explained why the Fed's large-scale asset purchases are continuing.
April 10, 2013
Who is holding all those U.S. dollars?
If recent trends continue, in a few months there will be $1.2 trillion in Federal Reserve notes (otherwise known as dollar bills) in circulation. Who is holding all these?
March 28, 2013
Guest Contribution: "Is the Federal Reserve Breeding the Next Financial Crisis?"
Today, we are fortunate to have a guest contribution by Ambrogio Cesa-Bianchi and Alessandro Rebucci. It is based upon Does Easing Monetary Policy Increase Financial Instability?. The views expressed in this column are the authors' and not necessarily those of the institutions with which they are affiliated.
March 17, 2013
What's going to happen to the Fed's balance sheet?
The Federal Reserve has increased its assets from $900 billion in 2007 to over $3,150 billion and still climbing today. On the liabilities side of the Fed's balance sheet, reserve balances held by banks have gone from $10 B in 2007 to $1,750 B and climbing today. My expectation had always been that this would be a temporary situation, with a return to historical norms when economic conditions improved. Recently, three different teams have independently studied what that transition back to normal might look like. One study was carried out by Robert Hall and Ricardo Reis (professors at Stanford and Columbia, respectively) and another by Seth Carpenter, Jane Ihrig, Elizabeth Klee, Alexander Boote, and Daniel Quinn (all economists at the Federal Reserve Board). I participated in a third study with David Greenlaw at Morgan Stanley, Peter Hooper at Deutsche Bank, and Frederic Mishkin at Columbia. Our analysis used a similar methodology to that conducted by the Fed staff, and we reached similar conclusions to theirs, while Hall and Reis took a broader and more theoretical perspective. Here I describe the methods and findings of our study.
March 03, 2013
Bernanke on long-term interest rates
On Friday I attended a conference at the Federal Reserve Bank of San Francisco, which included a very interesting presentation by Fed Chairman Ben Bernanke on long-term interest rates.
January 01, 2013
QE3 and beyond
Now that we've closed the books on 2012, I thought it might be useful to take a look at where monetary policy has led us over the last four years.
December 13, 2012
U.S. government profits from AIG bailout
A key player in the financial crisis was insurance giant AIG, which sold a huge volume of credit default swaps supposedly protecting buyers of mortgage-backed securities from losses due to default. But AIG had nowhere near the capital necessary to honor these guarantees when things went bad, and much of AIG's liabilities ended up being picked up by the Fed and the Treasury. On Tuesday the U.S. Treasury announced that it had sold the last of the common shares in AIG that it had acquired as compensation for its emergency assistance to AIG and reported that the Treasury and the Fed had together earned a profit of $22.7 billion as a result of their assistance to AIG. I was curious to take a look at how this story ended up having a happy ending.
December 12, 2012
Conditional Inflation Targeting in Effect
December 08, 2012
Trillion dollar platinum coin
Here's one of the wilder suggestions floating around for what the President could do if Congress fails to raise the debt ceiling.
November 10, 2012
Links for 2012-11-10
A few links to some items I found of interest.
September 23, 2012
Fat fingers and the price of oil
Can the wild swings in the price of oil over the last few weeks have anything to do with supply and demand?
September 16, 2012
Effects of QE3
On Thursday the Federal Reserve announced a series of measures that will come to be referred to as a third round of "quantitative easing," or QE3. Here I review what effects this is intended to have and some of the developments so far.
September 09, 2012
Woodford and QE3
Columbia University Professor Michael Woodford's paper at the Fed's Jackson Hole conference last week made the case that more large-scale asset purchases by the Fed would by themselves do nothing, and suggested that instead what really matters is the Fed's communication of its future intentions. There's a fair bit in Woodford's analysis that I agree with. But unlike Woodford, I think that asset purchases can be an important part of what the Fed could do in the here and now. Here I explain why.
September 05, 2012
The gold standard and economic growth
Tyler Cowen acknowledges that the gold standard as implemented in 1929-1932 was a disaster, and that a gold standard would also work very poorly in the presence of the big changes in the real value of gold over the last decade. But in the interests of promoting a balanced discussion, he asks:
Dare anyone critical of the gold standard bring themselves to utter these (roughly true) words?: "For the Western world, the gold standard era, defined say as 1815-1913, was arguably the greatest period of human advance ever, at least in matters of economics, culture, and technology."
Here are my thoughts on Tyler's question.
September 01, 2012
Return to the gold standard
Several sources reported that the 2012 Republican Platform would call for a commission to explore the possibility of the U.S. returning to a gold standard. However, the final document makes no mention of gold, and instead seems to have settled on a proposal that is unlikely to do any harm:
President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency. The commission advised against such a move. Now, three decades later, as we face the task of cleaning up the wreckage of the current Administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar.
I thought it would be worthwhile to review some of the reasons why we should be thankful that saner heads seem to have prevailed.
August 26, 2012
U.S. monetary policy since the financial crisis
The Federal Reserve Bank of New York announced on Thursday that it had sold the last remaining securities from its Maiden Lane III portfolio, successfully closing the chapter on its assistance to insurance giant AIG. I thought this would be a good occasion to review the various measures that the Fed implemented over the last 5 years-- what they were attended to accomplish, what they did accomplish, and the significance of Thursday's announcement.
August 10, 2012
Guest Contribution: Innocent Bystanders? Monetary Policy in the U.S. and Inequality
Today, we are fortunate to have a guest contribution written by Olivier Coibion (UT Austin) [interviewed here by Prakash Loungani], Yuriy Gorodnichenko (UC Berkeley), Lorenz Kueng (Northwestern) and John Silvia (Wells Fargo); it is based on IMF Working Paper No. 199
August 08, 2012
The Federal Reserve's Maturity Extension Program and Treasury debt management
The Fed giveth and the Treasury taketh away.
August 01, 2012
The Fed stands pat, at least for now
Today's statement from the FOMC, the decision-making body for the Federal Reserve, basically said that, yes, the economy has worsened since the FOMC's previous meeting, but no, they're not going to do anything about it. At least, not right now.
July 15, 2012
Is QE3 coming?
Conditions have changed since January, and we might expect some additional stimulus from the Fed at the next FOMC meeting.
June 28, 2012
Guest Contribution: The Fed Shirks Its Duties
Today we are fortunate to have a guest contribution written by Joseph E. Gagnon of the Peterson Institute of International Economics.
June 19, 2012
Europe in 1931
I was at a conference at the Cato Institute two weeks ago discussing some research by Dartmouth Professor Doug Irwin on the role of the gold standard in the Great Depression of 1929-1933. If you're interested, you can see a written version of my comments, the slides from my presentation, or a video of the session (my comments begin a little more than half way in). Here I'd like to relate some of the discussion of what happened in Europe in 1931, and comment on some of the parallels with what is going on today.
June 16, 2012
Options for Europe
This problem is not fixing itself.
June 03, 2012
Markets see bad news
May was a bad month for U.S. stocks. June started out worse, with the S&P500 on Friday down 9% from where it stood at the beginning of May. That puts us back about where we started the year in January, though still significantly above last fall's lows.
May 06, 2012
Yes, the Fed could produce a higher inflation rate
From the responses to my remarks last week on monetary policy, I see that my words were interpreted by some readers differently than I'd intended, for which I apologize. Let me try again.
May 02, 2012
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.
March 25, 2012
Disentangling the channels of the 2007-2009 recession
Harvard Professor James Stock and Princeton Professor Mark Watson presented a very interesting paper last week at the Spring 2012 Conference for the Brookings Papers on Economic Activity. Their paper studied similarities and differences between the 2007-2009 recession and other U.S. business cycles.
March 11, 2012
Sterilized quantitative easing
Jon Hilsenrath of the Wall Street Journal reported last week that Federal Reserve officials are evaluating the possibility of a measure that the journal describes as "sterilized" quantitative easing. How would this work, and what would it be intended to accomplish?
February 26, 2012
Factors in the recent oil price increases
Crude oil prices surged last spring following disruptions in oil production from Libya, and had been drifting down during the summer and fall. But since the beginning of October, the price of West Texas Intermediate and Brent crude oil have both risen by over 30%, putting them back up near where they had been last spring. What's changed in the world since the beginning of October?
February 15, 2012
Measuring the consequences of the zero lower bound constraint
In a period of deleveraging such as the U.S. has been going through, it is possible for the natural rate of interest to become negative. Since cash is always an option for earning at least a yield of zero, no asset should ever pay less than zero. This lower bound of zero on nominal interest rates can put a constraint on the ability of the economy to self-correct or the Fed to provide stimulus in such a situation.
The Fed still has some tools to try to reduce longer-term yields, namely large-scale asset purchases and signaling the Fed's future intentions. A new research paper by Federal Reserve Bank of San Francisco President John Williams and Senior Research Advisor Eric Swanson proposes a creative new approach to measuring when and to what extent the zero lower bound is a relevant constraint on interest rates of any maturity.
February 13, 2012
Send a valentine to the Fed
NPR's Planet Money: You had me at QE1.
Michael McKee: The sight of you fills me with irrational exuberance.
Annalyn Censky: Our love isn’t transitory baby, it's gonna be exceptional for an extended period.
NPR's Planet Money: I'll be your lover of last resort.
February 12, 2012
Why not abolish the Fed and return to the gold standard?
Newt Gingrich said that if elected president, he'd name [James] Grant to help run a commission looking at a possible return to the gold standard. And Ron Paul said, if elected president, he'd go all-in and name Grant-- one of Wall Street’s best-known gold bugs-- as the new chairman of the Federal Reserve....
"Unfortunately, I haven't heard from Mr. Romney yet," joked Grant when I called on him in his offices down on Wall Street. "I'm sitting by the phone, I'm ready."
I presume that Grant would be advising any would-be policy-makers who listen to him the sort of thing that he wrote in 2010:
The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.
I thought it would be worthwhile reviewing some of the reasons why I disagree with Grant on this point.
January 29, 2012
Inflation expectations and the Fed
The Fed has begun implementing its new communication strategy. Here's what the message seems to be.
January 02, 2012
A Call for Action: Conditional Inflation Targetting
[We need] inflation -- just enough to reduce the debt burden to more manageable levels, which probably means in the 4 to 6 percent range for several years. The Fed could accomplish this by adopting a flexible inflation target, one pegged to the rate of unemployment. Chicago Fed President Charles Evans has proposed something very similar, a policy that would keep the Fed funds rate near zero and supplemented with other quantitative measures as long as unemployment remained above 7 percent or inflation stayed below 3 percent. Making the unemployment target explicit would also serve to constrain inflationary expectations: As the unemployment rate fell, the inflation target would fall with it.
December 21, 2011
European financial tensions and the Fed
U.S. monetary policy has gone through three distinct phases since 2008. We may be about to begin the fourth.
December 14, 2011
The Federal Reserve still would like to do more, but not right now.
December 11, 2011
More on those secret Federal Reserve loans to banks
The claim that the Federal Reserve extended trillions of dollars in secret loans to banks continues to be spread. Here at Econbrowser we will continue to try to correct some of the misunderstanding that is out there.
December 06, 2011
$7.77 trillion in secret Federal Reserve loans to banks?
I have been looking into the claim recently made by any number of internet sites (for example, here's one of the many hundreds, if you insist on a link) that the Federal Reserve made $7.77 trillion in secret loans to banks. The claim is outrageously inaccurate, as I explain below.
November 30, 2011
Central banks augment currency swap capabilities
The U.S. Federal Reserve, European Central Bank, and central banks of Canada, England, Japan, and Switzerland today announced a coordinated monetary action that could provide added assistance to interbank lending in the event of a further deterioration in global financial markets. Here I offer some thoughts on what the action signifies.
October 30, 2011
Home Affordable Refinance Program
Last week the Federal Housing Finance Agency, Fannie Mae and Freddie Mac jointly announced changes to the Home Affordable Refinance Program (HARP) with the goal of making it easier for some households to refinance their mortgages at lower interest rates. Here I offer some thoughts on this proposal.
October 23, 2011
Links for 2011-10-23
Dave Altig and Patrick Higgins at the Federal Reserve Bank of Atlanta have raised their estimate of 2011:Q3 real GDP growth from 1.4% as of the beginning of September to 3.2% currently.
Enterprise Products Partners and Enbridge Inc. announced plans to build a new pipeline from oversupplied Cushing, Oklahoma to the Gulf Coast (hat tip: Jim Brown). I reviewed the great need for such a pipeline here, and this may be one way to get one built without having to wait forever for White House approval.
Federal Reserve Bank of San Francisco President John Williams reviews lessons from the last 3 years on the effects of unconventional monetary policy.
Michael Plante and Mine Yucel at the Federal Reserve Bank of Dallas review the evidence on the role of speculation in recent oil price moves.
October 16, 2011
Could monetary policy mitigate the real effects of oil shocks?
Michael Levi (hat tip:Marginal Revolution) and Jeremy Kahn are among those who recently rediscovered some earlier research by Ben Bernanke and others that concluded that the economic downturns that followed historical oil price shocks could have been avoided if the Fed had followed a more expansionary monetary policy at the time. Here I call attention to some subsequent research that took another look at their evidence and reached a different conclusion.
October 02, 2011
Monetary policy and democracy
Should presidents of regional Federal Reserve Banks have a vote on the FOMC, the policy-making committee of the Federal Reserve?
September 23, 2011
Effects of operation twist
The Federal Reserve announced on Wednesday (, ) that it will sell some of its shorter-term assets in order to buy more longer-term assets. Here I assess some of the possible consequences of this move.
September 07, 2011
Following the Swiss lead
Today Econbrowser is pleased to feature a guest post from Johns Hopkins University Professor Jonathan Wright, in which he proposes an option for economic stimulus by the Federal Reserve.
August 31, 2011
Recommendations for economic policy
August 21, 2011
Waiting for the Fed to act
Economic conditions are deteriorating. Here's how and when the Fed might intervene.
August 15, 2011
Governor Perry on Monetary Policy
From the Washington Post:
..."If this guy [Fed Chairman Bernanke] prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous, or treasonous, in my opinion.”
August 10, 2011
Losing your AAA
On Friday, Standard & Poor's, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It's been a wild ride for equity and commodity markets ever since.
August 08, 2011
Joe Gagnon: "A Plan for Action on Jobs"
Joe Gagnon (formerly associate director of Monetary Affairs, and of International Finance, Divisions at the Fed) of the Peterson Institute for International Affairs has had enough with the policy paralysis . From Stop Sticking Our Heads in the Sand! A Plan for Action on Jobs:
...our leaders have been in denial about the true nature and magnitude of the problem. The ongoing stock market anxiety surely must wake them up.
July 24, 2011
Effects of the Fed's large-scale asset purchases
Some Federal Reserve officials apparently have a rule of thumb for thinking about the impact of the Fed's large-scale asset purchases. I was curious to compare those estimates with the numbers that would come out of my own research.
July 13, 2011
Evaluating quantitative easing using event studies
Event studies are one method that has been used to try to assess the potential effects on markets of nonstandard monetary policy measures such as QE2. The Federal Reserve Bank of St. Louis recently hosted a conference whose objective was to evaluate evidence on the effects of these policies. Here I relate remarks I made at the conference on some of the challenges from trying to use event studies to answer this question.
July 06, 2011
Ron Paul's debt default proposal
Congressman Ron Paul (R-TX) is apparently proposing that the U.S. Treasury simply refuse to pay interest and principal on the $1.6 trillion in Treasury securities currently owned by the Federal Reserve. Dean Baker, Greg Mankiw, Steve Williamson, and Stephen Gandel all seem to think it's not a totally crazy idea. Here's what I think they're missing.
July 02, 2011
The effectiveness of quantitative easing
This week I attended a conference hosted by the Federal Reserve Bank of St. Louis on quantitative easing. The purpose of the conference, as explained by Bank President James Bullard in his opening remarks, was to answer Stanford Professor John Taylor's challenge to provide research of real-time usefulness to policy makers. The conference featured analyses by 5 different research teams of the effects of recent quantitative easing measures adopted in the United States and United Kingdom.
June 19, 2011
Monetary policy since 2000
I just returned from the annual conference of the Society for Financial Econometrics hosted by the University of Chicago. One of the many interesting papers described changes in Federal Reserve policy over time.
June 05, 2011
Life without QE2
Last November, the Federal Reserve announced a plan to purchase $75 billion each month in intermediate-term Treasury securities, a measure popularly described as a second round of quantitative easing, or QE2. June is the last month of this program, and it looks unlikely that the Fed will extend it, causing some observers to be concerned. My view is that QE2 had relatively modest effects, and such benefits as it provided should not evaporate with the end of the purchases.
May 05, 2011
Guest Contribution: The Taylor Rule and QE2
By David Papell
April 13, 2011
Interest rate risk and the Fed
Is borrowing short and lending long a risky strategy for the Fed?
March 13, 2011
Consumers see bad news
The Reuters-Michigan survey of consumer sentiment registered a decline from 77.5 in February to a preliminary reading of 68.2 in March. That's the biggest monthly decline since the financial crisis in October 2008, and wipes out the nice gains of the last four months to put us back where we were in October 2010.
March 06, 2011
Velocity of Federal Reserve deposits
I've been emphasizing that the U.S. Federal Reserve has not been printing money in the conventional sense of creating new dollar bills that have ended up in anybody's wallets. Instead, the Fed has been creating new reserves by crediting the accounts that banks maintain with the Fed. Today I'd like to offer some further observations on how those reserve balances mattered for the economy historically, how they matter in the current setting, and how they may matter in the future.
February 20, 2011
New indications of inflation
Where are the inflationary pressures?
February 16, 2011
Money and reserves
I wanted to offer some clarification on stories about all the money that the Federal Reserve is supposedly printing. It depends, I guess, on your definition of "money." And your definition of "printing."
February 13, 2011
Progress report on QE2
We're now 3 months into the Fed's new asset purchase program that has been popularly described as a second round of quantitative easing, or QE2. I thought it would be useful to take a look at what has actually changed during the first 3 months of QE2.
January 23, 2011
The Fed's new policy tools
We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I'd like to discuss three new papers that have come out since then.
December 26, 2010
Changes in the yield curve
The bond market sees an improving economy.
December 21, 2010
Velocity of money
I wanted to follow up on Menzie's recent observations about what's been happening to the supply and demand for money.
December 14, 2010
Did QE2 work?
Having offered my assessment of the effects of the Fed's second round of quantitative easing (QE2), I wanted to mention briefly the takes of some other observers.
December 11, 2010
On November 3, the Federal Reserve announced some new monetary policy measures that have been popularly (if perhaps inaccurately) referred to as a second round of quantitative easing, or QE2. What effects, if any, does QE2 seem to have had so far?
November 24, 2010
The Fed's communication problem
The start of the FOMC's November meeting is described in the minutes released yesterday as follows:
The meeting opened with a short discussion regarding communicating with the public about monetary policy deliberations and decisions. Meeting participants supported a review of the Committee's communication guidelines with the aim of ensuring that the public is well informed about monetary policy issues while preserving the necessary confidentiality of policy discussions until their scheduled release. Governor Yellen agreed to chair a subcommittee to conduct such a review.
Here I provide some suggestions for Governor Yellen's subcommittee to consider.
November 20, 2010
Answering the bunnies
A cartoon has been making the rounds (e.g., Forbes, Zero Hedge, and Real Clear Politics) in which cartoon characters (bunnies maybe? or perhaps some other life form) ask questions about quantitative easing. I would have provided slightly different answers than did the didactic character in the cartoon, so I thought it might be fun to interject myself as a third character in the bunnies' conversation.
November 10, 2010
I guess now we know that the Fed has the tools to prevent deflation.
November 03, 2010
QE2: Been there, done that
The Federal Open Market Committee announced today that:
the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
October 27, 2010
Negative real interest rates
What message should we take from negative real interest rates?
October 20, 2010
Arguments against QE2
Having earlier reviewed some of the reasons in favor of additional quantitative easing (QE2), I'd like to acknowledge some of the dissenting views.
October 17, 2010
More than one tool for the Fed
One theme that emerged from the monetary policy conference at the Federal Reserve Bank of Boston on Friday and Saturday is that, as I stressed in my discussion of the recent FOMC minutes, the Fed is not thinking of large-scale asset purchases as the only tool available in the current environment.
October 15, 2010
More discussion of options for the Fed
I'm in Boston today at a conference at the Federal Reserve Bank. Fed Chair Ben Bernanke spoke this morning and this afternoon I presented results from my research with Cynthia Wu. I hope to have time later this weekend to say a little more about some of the presentations and discussion. But for now let me provide a link to an interview with CNBC on some of these issues.
October 13, 2010
Why is the Fed doing this?
Most observers now seem convinced that the Federal Reserve will shortly implement QE2, a second round of quantitative easing. It's worth taking a look at what QE2 is and is not expected to accomplish.
October 10, 2010
The market moves ahead of the Fed
Over the last month, a consensus seems to have emerged that (1) the Fed has the ability to depress long-term yields further, and (2) the Fed has the intention to implement such measures. That raises the possibility that recent market moves represent a bet already placed by market participants on the basis of the logical implications of (1) and (2).
October 03, 2010
QE2: estimates of the potential effects
As the conviction grows that the Federal Reserve will adopt a second round of quantitative easing (dubbed by some as "QE2"), I thought it might be helpful to survey some of the different estimates of what effect this might have on long-term interest rates.
September 23, 2010
What's the Fed signaling?
There's an aspect of Tuesday's statement from the FOMC that's not being emphasized by many analysts.
September 12, 2010
Should the Fed try to depress long-term yields further?
I've been sharing with readers my recent research with Cynthia Wu, in which we found that the Fed could likely lower long-term interest rates further by buying more long-term securities, even though the short-term rate is essentially zero and even though the newly created reserves would simply sit idle in banks' accounts with the Fed. Here I'd like to take up the question of whether such a policy would be desirable.
August 31, 2010
Policy tools that could lower interest rates further
Even though the overnight interest rate has been stuck near zero for 20 months, are there options available to the Federal Reserve or the U.S. Treasury to bring longer-term yields down further? I have been looking into this question with Cynthia Wu, an extremely talented UCSD graduate student. We present our findings in a new research paper, some of whose results I summarize here.
August 29, 2010
New database on the maturity structure of publicly-held debt
I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I'll be relating the conclusions from that research in a few days. But first I'd like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.
August 25, 2010
More thoughts on what to expect from the Fed
There is disagreement within the FOMC. How will it be resolved?
August 18, 2010
Will the Fed do more?
If conditions deteriorate further, I believe the answer is yes.
August 11, 2010
Ever so slightly less contractionary
What is the significance of yesterday's statement from the FOMC?
August 01, 2010
Options for monetary stimulus
The latest economic data have surely warranted a downward revision in the Federal Reserve's assessment of near-term economic performance. It therefore might be a good time to review the steps the Fed could take if it wishes to provide further economic stimulus.
July 19, 2010
Guest Contribution: Should central banks target higher rates of inflation?
By Olivier Coibion, Yuriy Gorodnichenko, and Johannes Wieland
Today, we're fortunate to have Oli Coibion, and Yuriy Gorodnichenko, Professors of Economics at William and Mary and at UC Berkeley, respectively, and Johannes Wieland, Ph.D. candidate at UC Berkeley, as a Guest Contributors.
July 18, 2010
The Bureau of Labor Statistics reported Friday that the seasonally adjusted consumer price index declined in June to the lowest level since November. When we start to talk about the level of the CPI rather than its rate of change, you know that deflation could once again become a key concern.
July 06, 2010
Bob Hall on financial frictions
Via Mark Thoma and Arnold Kling, the Federal Reserve Bank of Minneapolis published an interview with Stanford Professor Robert Hall. The interview is terrific not just because Bob is a very smart guy, but also because interviewer Douglas Clement did a great job choosing the right questions. The whole thing's worth reading, but I wanted to focus today on Bob's comments on the role of financial frictions in the crisis and policy options to address them.
June 20, 2010
Inflation or deflation?
For the last year and a half my assessment has been that the near-term pressures on the U.S. economy were deflationary, while long-term fundamentals involve significant inflation risks. It's time for a look at the data that have come in over the last 6 months, and time to say that I still see things exactly the same way.
June 16, 2010
Links for 2010-06-16
Three interesting figures on fuel consumption, job creation, and prospective interest rates.
May 12, 2010
The European bailout
April 28, 2010
Why Adam ate the apple
In my last post, I discussed how the run-up of U.S. mortgage debt during the last decade was funded. One important element was the sale of commercial paper that helped fund the purchase of some mortgage-related securities. Here I comment on why it was hard for some institutions to resist buying that commercial paper.
March 17, 2010
Bank supervision and the Federal Reserve
In testimony today before Congress, Fed Chair Ben Bernanke outlined his reasons why the Federal Reserve is uniquely suited to be the regulatory supervisor for U.S. banks.
March 09, 2010
Modeling problems in credit markets
On Friday I joined fellow blogger Mark Thoma (and a good many other economists) at a very interesting conference on financial markets held at the Federal Reserve Bank of San Francisco. Here I share some ideas I expressed at the conference about the directions I feel this research ought to go.
February 23, 2010
Treasury Supplementary Financing Program (SFP)
The SFP, the U.S. Treasury's program for assisting with the balance sheet of the Federal Reserve, is making a sudden and dramatic comeback.
February 20, 2010
The Fed's discount rate hike
The Federal Reserve Board announced on Thursday that it is raising the interest rate at which banks borrow from the Fed's discount window to 0.75%, a 25-basis-point increase, and intends to return discount lending primarily to the traditional overnight loans. "The rate hike cycle begins," declared 24/7 Wall St, and Business Week reported:
Treasuries fell, pushing yields to the highest levels in at least five weeks, amid concern the Federal Reserve's increase in the discount rate signaled policy makers are moving closer to lifting benchmark borrowing costs.
But I don't believe that's what the discount rate hike means at all.
February 16, 2010
The new normal
Also included in Federal Reserve Chair Ben Bernanke's statement to Congress last week were some guidelines for what we might expect Federal Reserve decisions and communications to look like as we make the gradual adjustment to more normal conditions.
February 14, 2010
Bernanke on the Fed's balance sheet
Federal Reserve Chair Ben Bernanke last week released a statement of how the Fed intends to manage its bloated balance sheet over the next few years. Here I offer my interpretation of what his plan involves.
January 31, 2010
John Cochrane on the credit crisis
January 28, 2010
"No rate hikes likely in 2010..."
Despite the somewhat startling conclusion (at least to me), the implications are pretty straightforwardly arrive at. From Michael Rosenberg, Financial Conditions Watch (Bloomberg, Jan. 27, 2010) (link added 1/29 8am)
Fed Funds Rate Outlook -- A Taylor Rule Perspective
With U.S. real GDP growth moving back into positive territory in the second half of 2009 following four consecutive quarters of negative growth (see Figure 1), the economic forecasting community appears to be increasingly optimistic about the U.S. economy's growth prospects for 2010-11....
January 23, 2010
Why Bernanke should be reconfirmed
Econbrowser readers are well aware that there are a number of issues on which I have concerns about some of the decisions the Fed has made, such as dropping the ball on regulation (, ), keeping interest rates too low for too long over 2003-2005 (, ), taking some real risks with the Fed's new balance sheet (, , ), and pretending the Fed had nothing to do with the commodity price boom of 2008 (, ). Notwithstanding, there is no question in my mind that Bernanke should be reconfirmed as Chair of the Federal Reserve Board. Here's why.
January 19, 2010
Is it reasonable to worry about inflation in the current environment?
January 17, 2010
How the Federal Reserve earned its profit
I was curious to take a look at the details behind the following story:
The Federal Reserve Board on Tuesday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. This represents a $14.4 billion increase over the 2008 results.
January 13, 2010
Links for 2010-01-13
Stuart Staniford, who earlier had been persuaded that global oil production might have already peaked, now comments on the potential for increased production from Iraq to push the peak up to a decade down the road.
King Banaian on disturbing developments in Argentina and Venezuela.
Economists comment on the role of the Fed in the housing bubble. Two in particular worth emphasizing:
Marvin Goodfriend: Interest rate policy was appropriately stimulative in the 2002-3 period. But rates should have been raised less mechanically and more aggressively in 2004-5 on grounds of the usual macroeconomic conditions.... A somewhat tighter stance of interest rate policy then could have cut off the last year or so of the house price appreciation and prevented the worst part of the subsequent adjustment.
Mark Gertler: If we could go back in history and make one policy change, I'd go after sub-prime lending. Absent non-prime lending, the likely outcome of the housing correction of 2007 would have been a mild recession like 2000-2001, and not the debacle we experienced.
January 11, 2010
Guest Contribution: Bernanke on the Taylor Rule
By David Papell
January 05, 2010
Bernanke grades the Fed
Fed Chair Ben Bernanke's observations on monetary policy and the housing bubble have received a lot of attention. Like many other commentators (e.g., Arnold Kling, Paul Krugman, and Free Exchange), I agree with Bernanke's conclusions, but only up to a point.
January 04, 2010
Guest Contribution: Monetary Policy and Asset Bubbles in 2010
By Joseph E. Gagnon
In his speech at the American Economic Association yesterday, Ben Bernanke said that monetary policy played at most a small role in the U.S. housing bubble and that financial regulatory policy is the appropriate tool for preventing harmful asset price bubbles in the future. I agree with these conclusions, but I suspect that many do not, even within the world of central banking.
December 30, 2009
Term deposit facility
On Monday the Federal Reserve proposed a new term deposit facility that would allow the Fed to borrow directly from private institutions. Here I offer some thoughts on how this fits into the Fed's long-term plans and what its implications for the rest of us might be.
December 19, 2009
What went wrong and how can we fix it?
December 13, 2009
Should the Fed be the nation's bubble fighter?
That's a question recently taken up by the Wall Street Journal. Here are my thoughts.
December 08, 2009
Commodity prices and the Fed
I've been discussing possible explanations for the recent tendency of the dollar prices of commodities to move together. On Friday we received a very useful data point for distinguishing between the different hypotheses.
November 15, 2009
Why are the prices of so many commodities rising in an economy that seems to remain quite weak?
November 09, 2009
Guest Contribution: The Liquidity Trap Does Not Make Monetary Policy Ineffective
By Joseph E. Gagnon
October 27, 2009
Improving financial regulation and supervision
There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder's message was It's Broke, Let's Fix It: Rethinking Financial Regulation. Here I summarize four key reforms these speakers addressed.
October 25, 2009
Evaluating the new tools of monetary policy
Last week I participated in a conference hosted by the Federal Reserve Bank of Boston, at which I discussed the new lending programs and asset acquisitions pursued by the Federal Reserve over the last two years. Previously I shared with Econbrowser readers empirical evidence on the effects these targeted liquidity operations seem to have had. Below I reproduce my remarks from the conference on the underlying motivation for using such measures, in which I suggested that the critical question is what was the underlying cause of the financial stress to which the Fed was responding. I distinguished between two possible interpretations of how the financial crisis arose.
October 14, 2009
Targeted liquidity operations
During the last two years, the Federal Reserve responded to problems in the financial markets through what I have described as monetary policy using the asset side of the Fed's balance sheet, replacing its traditional holdings of Treasury securities with a variety of new lending programs and alternative assets. I've been taking a look at what effect these operations seem to have had on the problems they were designed to address.
September 28, 2009
Guest Contribution: Lessons from the 1970s for Fed Policy Today
By David Papell
The Federal Open Market Committee voted last Wednesday to keep the federal funds target rate at a record low of between zero and 0.25 percent. If it was not constrained by the zero lower bound, should the federal funds rate be negative? If the answer is yes, this suggests that the rate should remain at its record low for a considerable period and provides a justification for continued increases in the Fed's balance sheet. If the answer is no, then the Fed may need to raise its interest rate target sooner rather than later.
September 27, 2009
Federal Reserve reverse repurchases
Here I offer some thoughts on Bloomberg's account that the Fed has made inquiries with its dealers about the feasibility of a significant increase in the Fed's reverse repo operations.
September 25, 2009
Links for 2009-09-25
Tim Duy worries that some FOMC members are overestimating the inflation risk.
Arnold Kling proposes a mackerel theory of value.
The discussion at Cato of monetary policy continues.
September 18, 2009
Regulating compensation in the banking sector
I see a good case for this, but also some big things to worry about.
September 16, 2009
Scott Sumner on the Fed's mistakes
The Cato Institute is hosting a discussion this month of the extent to which monetary policy may have contributed to our current economic problems. In the lead essay that appeared on Monday, Professor Scott Sumner of Bentley University suggested that the Fed erred in allowing nominal GDP to grow as slowly as it did. My response appeared this morning. I agree that faster growth of nominal GDP would have been a good thing, but argue that, particularly if you start the clock in the fall of 2008, the Fed lacked the tools to prevent a decline in nominal GDP.
August 23, 2009
The market-perceived monetary policy rule
Stanford Professor John Taylor has suggested that monetary policy could be summarized in terms of a simple rule, lowering interest rates when output is too low and raising them when inflation is too high. A number of academic papers have investigated this rule from the perspective of describing what the Federal Reserve has historically done. In a new paper co-authored with Federal Reserve economist Seth Pruitt and Office of Immigration Statistics economist Scott Borger, I take a look at what monetary policy rule the market perceived the Fed to be following over different historical periods.
August 21, 2009
The Road Ahead for the Fed
Tom Keene has been doing a series for Bloomberg Radio this week on the new book, The Road Ahead for the Fed. You can listen to Tom's interviews with me or three of the other authors who contributed to the book by clicking on a link below.
August 18, 2009
Replay of 1930?
We know the glass is both half empty and half full. But the real question is whether liquid is being added in or draining out.
August 11, 2009
Paying for design flaws
Updates on what this is going to cost you and me.
August 06, 2009
Pricing of interest rate risk in fed funds futures contracts
Do current fed funds futures prices signal a belief by market participants that the Fed may begin raising interest rates early next year? My latest research paper suggests not.
July 23, 2009
Looking for an exit: Part 2
In my previous post I commented on Ben Bernanke's recent communication of the Fed's exit strategy for getting its balance sheet and daily operations back to historical norms. I suggested that one necessary ingredient to convince the public that we will see a return to a stable monetary regime would be a credible explanation of how the United States government will be able to meet its enormous current and implicit future fiscal obligations. Today I'd like to discuss a second element that I feel is missing from the exit strategy articulated by Bernanke, and this is a compelling vision of what a healthy financial market not propped up by the Treasury and the Fed would look like.
July 21, 2009
Looking for an exit
In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.
July 17, 2009
Links for 2009-07-17
Some quick remarks about the evidence for economic recovery, central bank independence, and Goldman Sachs.
July 14, 2009
Concerns about the Fed's New Balance Sheet
That's the title of a chapter I contributed to a new book edited by John Ciorciari and John Taylor entitled The Road Ahead for the Fed. The book grew out of a conference held at Stanford University in March.
June 27, 2009
On grilling the Fed Chair
I got a bit angry at accounts of the latest appearance of Federal Reserve Chair Ben Bernanke before the U.S. Congress.
June 02, 2009
More on bank lending data
Further evidence on the decline in bank lending.
June 01, 2009
High Anxiety (about Interest and Inflation Rates)
In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn't understand the fears at the time; and I still don't. Now flash forward eight years, and move across the Pacific.
May 27, 2009
More papers on the credit crunch
Links to some interesting papers that I recently read.
May 12, 2009
Tracking the recession
Here are links to perspectives from others on where the economy stands at the moment.
May 10, 2009
Inflation and relative prices
There are persuasive reasons why we'd be better off today with an inflation rate higher than what we've seen over the last six months. But while a uniform expansion that raised all wages and prices by the same amount would be helpful, what the Fed could actually achieve in the present situation may be something less desirable.
April 16, 2009
There has been a lot of breast-beating in the press and in the blogosphere about how economists failed to discern the possibility that not all was going well in the years leading up the current financial and economic crisis . I think the notion that all economists were blithely optimistic has been dispelled (well, okay, here's a couple of exceptions: Dan Gross h/t Free Exchange, A. Kaletsky). At the risk of some gross simplifications, I will speculate that there was -- until recently -- less optimism among academic macroeconomists than Wall Street economists. There was probably less anxiety among say finance professors who focused on asset pricing (as opposed those who worked in banking) than macroeconomists (Dani Rodrik highlights the diversity). One divide that I think is not particularly relevant in locating the source of the crisis is the most well known one -- specifically whether prices are sticky.
In my opinion, the big divide in thinking relates to how economists conceive of financial markets working. This is a divide that cuts across other divides. For instance, the Hicksian decomposition (IS-LM), in its simplest incarnation, treats the financial world as one wherein bonds are identical, and the only means of borrowing; there is no separate channel for lending, say via bank loans, to influence aggregate demand (see this post for the many channels of monetary policy). In the real business cycle literature, and many New Keynesian DSGE models, there is a representative bond (and lending rate) which summarizes the asset markets (see Camilo Tovar's survey of DSGEs for a discussion).
April 13, 2009
The Demise of the Dollar? Should We Worry about Quantitative Easing and Deficit Spending?
Over the weekend, I was working on my long delayed manuscript on exchange rate modeling , and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
April 06, 2009
The Yield Curve, across Countries, across Time
A year and half ago, I asked "Does it matter that yield curves (around the world) are sloping downward?" (October 12, 2007). I included this snapshot of term premia in the post:
April 02, 2009
Consequences of the Oil Shock of 2007-08
In a follow-up on my earlier post, I'd now like to discuss the second part of my paper, Causes and Consequences of the Oil Shock of 2007-08, which I presented today at a conference at the Brookings Institution. Here I'll review the role that the oil price shock may have played in causing the economic recession that began in 2007:Q4.
Causes of the Oil Shock of 2007-08
I will be presenting my latest research paper, Causes and Consequences of the Oil Shock of 2007-08, at a conference today at the Brookings Institution. Here I review some results from that paper about what caused oil prices to rise so spectacularly in 2007-08 only to decline even more dramatically afterward.
March 29, 2009
The Fed's new balance sheet
My previous post reviewed the profound changes in the balance sheet of the U.S. Federal Reserve over the last 18 months. Here I comment on some of the concerns that the new Fed balance sheet raises for the conduct of monetary policy.
March 27, 2009
Money creation and the Fed
A lot of people have seen this picture of the recent behavior of the monetary base and wondered what it means.
March 22, 2009
The first votes are in
The Federal Reserve can't be entirely pleased with markets' reaction to its announcement on Wednesday of quantitative goals for purchases of long-term assets.
March 19, 2009
The U.S. Federal Reserve yesterday finally took the step many of us had been urging for some time.
March 10, 2009
Moral hazard and AIG
We are now suffering the consequences of one of the most spectacular financial miscalculations in history, after investors around the world discovered that trillions of dollars invested in securities derived from U.S. home mortgages were far riskier than they had originally believed.
March 03, 2009
How much is a trillion?
A trillion dollars used to be a sum that never naturally came up in normal conversation. Now all of a sudden, it's the standard unit we seem to be using to talk about our economic problems and what we're trying to do about them. Fortunately, I think I finally got a handle on what $1 trillion really means.
February 24, 2009
The Bernanke rally
Tuesday's stock market rally was pretty impressive. But can the mere words of the Federal Reserve Chair actually produce a 4% increase in the value of the U.S. capital stock?
February 21, 2009
Deflation risk down but not out
February 17, 2009
Prospects for the U.S. banking system
Some thoughts on the extent of the problem and options for solution.
February 10, 2009
The Treasury's Financial Stability Plan
Here's my two cents on the latest two trillion.
January 13, 2009
Bernanke on the Fed's balance sheet
January 11, 2009
Signs of a thaw
Yes, I saw the discouraging headlines. But I also see signs of hope in last week's economic news.
December 21, 2008
Federal Reserve balance sheet
Here I survey how we got here, where things currently stand, and what it all means.
December 16, 2008
December 14, 2008
John Taylor on the Federal Reserve
Stanford economics professor John Taylor has a new paper in which he takes aim at recent economic policy, and fires with both barrels, concluding that "government actions and interventions caused, prolonged, and worsened the financial crisis."
December 01, 2008
Podcast on the Federal Reserve
I did a long interview today with Tom Keene of Bloomberg Radio on the current recession and Federal Reserve policy. You can listen to it by clicking here.
November 27, 2008
The more the merrier
How many economic-advice-giving organizations does it take to run a White House?
November 24, 2008
Time for a change at the Fed
Plan A didn't work. Plan B didn't work. I suggest the Fed get going on Plan C.
November 16, 2008
The anomalous fed funds market
Some further thoughts on the bizarre behavior of the interest rate that used to be the core instrument of U.S. monetary policy.
November 10, 2008
Update on FDIC guarantee fees
On Saturday I noted that details of the FDIC guarantees of fed funds implemented on October 14 could introduce a substantial wedge between the fed funds target and the effective fed funds rate. Rebecca Wilder argues that this could not be affecting the current effective fed funds rate due to details of the "opt out" provision. Here I provide some further discussion of this point.
November 08, 2008
The new, improved fed funds market
Yet another week of institutional changes that render all those nice macroeconomic texts and professors' lecture notes obsolete.
October 29, 2008
There are plenty of things to worry about in the current economic situation. But deflation isn't one of them.
October 27, 2008
Further rate cuts needed
The Fed will probably vote for another 50-basis-point cut in the fed funds rate this week, bringing its target down to 1%. Here's why I think that would be a good idea.
October 25, 2008
The Federal Reserve's balance sheet
On Thursday, the Federal Reserve issued its weekly H.4.1 report, which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting.
October 07, 2008
Balance sheet of the Federal Reserve
I was astonished when I heard that the Fed is contemplating increasing the Term Auction Facility to $900 billion. I wanted to take another look at the ever-changing balance sheet of the Fed to see how logistically Bernanke might be able to perform such a feat.
September 28, 2008
Understanding the TED spread
One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. The size of this gap presumably reflects some sort of risk or liquidity premium. I was interested to break the TED spread down into identifiable components to try to get a better understanding of what may be responsible for its recent behavior.
Gross domestic income and recessions
The "final" values for 2008:Q2 GDP released by the Bureau of Economic Analysis on Friday were more disappointing than the earlier estimates. Still, the 2.8% annual growth rate for real GDP that we're now told characterized the second quarter doesn't sound like a recession. Or does it?
September 22, 2008
Brad DeLong on Bernanke and Paulson
Brad DeLong had some insightful and amusing observations on the priorities of Federal Reserve Chair Ben Bernanke and Treasury Secretary Henry Paulson. I can't resist reproducing Brad's comments with some annotations of my own.
September 21, 2008
Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke-- it is hard to overstate just how scary this week's developments in financial markets could be.
September 09, 2008
Taylor Rules, Synchronized Recession and the Potential for Competitive Depreciation
In yesterday's FT, "All in this together" assessed the possibility of a roughly synchronized downturn in the world's major economies, with the United States, ironically enough, suffering the smallest hit. This brings up all sorts of interesting questions regarding exchange rates, if one believes that Taylor rules define monetary policy making to some degree, and that interest differentials affect exchange rates.
August 19, 2008
Economic consequences of falling oil prices
I've maintained that rising oil prices put a significant burden on the U.S. economy in recent months. How much will falling oil prices help to alleviate those concerns?
August 12, 2008
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession , and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
July 15, 2008
Did Fannie and Freddie cause the mortgage crisis?
Some thoughts about the role played by the GSEs in the run-up in mortgage debt and house prices.
July 13, 2008
The Fannie and Freddie assistance plan
I see much to like about this.
July 12, 2008
Fannie Mae and Freddie Mac
How did we get into this mess, and how do we get out of it?
July 07, 2008
Janet Yellen on risks and prospects for the U.S. economy
This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. Her complete speech is available from the FRB SFO Here are some excerpts.
June 08, 2008
Why did oil breach $138?
June 06, 2008
Oil Prices in Other Currencies
Some of the explanations for the dollar jump rely upon the perceived weakness in the dollar's value (and hence, by extension, Fed policy). Does this make sense?
May 30, 2008
Commodity futures speculation
More on the possible contribution of index fund investment to recent commodity price moves.
May 25, 2008
How Effective Will Monetary Easing Be? The Bank Lending Channel and the Implications of Increasingly Internationalized Banks
As I noted in a previous post, monetary policy works through various channels, one of which is the "bank lending channel". Lower policy rates, as witnessed in the past few months and shown below, should induce greater lending.
May 13, 2008
Credit crunch: how we got here and how to get out
Fed Chair Ben Bernanke on Tuesday offered his perspective on the appropriate response of the Fed to the ongoing turmoil in financial markets. I still think he's overlooking a key element of what's been happening.
May 09, 2008
What if we'd been on the gold standard?
If the U.S. had decided to go back on the gold standard in 2006, where would we be today? That's a question my friend Randy Parker recently asked me. Here's how we both would answer.
May 03, 2008
Macroeconomics and ARCH
That's the topic of my most recent research paper. Reader warning: this is a bit more technical than the standard Econbrowser post, so if you're not a user of regression analysis, this may not be up your alley.
April 24, 2008
The case for 2-1/4
The Federal Open Market Committee's next meeting is scheduled for April 29/30, which the May fed funds futures contract currently anticipates will result in another 25-basis-point reduction in the target fed funds rate down to 2.0%. Here's why I hope the Fed doesn't do that.
April 22, 2008
Commodities and the Fed: answering the skeptics
Judging from some of the reactions across the blogosphere (not to mention any number of our own dear readers), maybe I should take another stab at clarifying why I see the hand of the Federal Reserve in the most recent movements in oil and commodity prices.
April 17, 2008
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
April 14, 2008
The G-7 Communique and the Dollar
April 13, 2008
Central bank independence
April 09, 2008
Oil and the Great Moderation
Another interesting paper presented at the Society for Nonlinear Dynamics and Econometrics Symposium that I attended last week was by Anton Nakov of the Bank of Spain and Andrea Pescatori of the Federal Reserve Bank of Cleveland on the role that changes in energy markets may have played in the reduction in GDP and inflation volatility observed since 1984.
March 26, 2008
Would you like anything else with that coffee, Ben?
Last week we received some new data linking commodity prices to the decisions of the U.S. Federal Reserve.
March 23, 2008
Here are a couple of nice summaries of the credit crunch and the Fed's response.
March 19, 2008
How much ammo is left in that fed funds gun?
March 18, 2008
Not a bailout
How shall we describe what happened this weekend with Bear Stearns? The first big casualty of the credit crisis, yes. Bailout, no.
March 15, 2008
Last week the Fed announced yet another new measure to deal with the ongoing problems in credit markets in the form of a just-created Term Securities Lending Facility, which we're apparently invited to refer to affectionately as a TSLF.
March 11, 2008
Asking too much of monetary policy
I remember a Federal Reserve economist once recounting a conversation with his young daughter, who asked him, "What do you do at work, Daddy?" He answered, "I help make important decisions." "What kind of decisions, Daddy?" "Oh, things like how much money the government needs to print."
March 07, 2008
Commodity prices and the Fed
If the Fed thinks that recent commodity price moves have nothing to do with their own actions, perhaps they should think again.
March 02, 2008
Just how badly is the U.S. economy doing?
That's the topic of a piece I wrote for today's San Diego Union-Tribune.
February 28, 2008
Bernanke's tightrope act
Some analysts are saying that Fed Chair Ben Bernanke is walking a tightrope-- if he does not drop interest rates quickly enough, the U.S. will be in recession, but if he goes too far, we'll see a resurgence of inflation. I am increasingly persuaded that's not an accurate description of the situation.
January 31, 2008
Thinking about Monetary Policy Efficacy: Back to the Textbooks
As the Fed drops interest rates, I've been trying to sort out all the channels that monetary policy will affect output, and which ones are likely to be short circuited this time around.
January 30, 2008
Fed rate cut
Today the Federal Reserve announced a further 50-basis-point cut in its target for the fed funds interest rate, bringing it down to 3.0% for a total reduction in January of 125 basis points. How long should it take before this has an effect on the economy?
January 22, 2008
Another day, another dollar
It was a fun day to be a macroeconomist, don't you think?
The Fed makes its move
The Federal Reserve announced today it was lowering its target for the fed funds rate 75 basis points, from its previous value of 4.25% to a new value of 3.5%.
January 17, 2008
The case against fiscal stimulus
Everybody else seemed to hear Bernanke say he was in favor of fiscal stimulus as one approach to our economic problems. But I instead heard him articulate very intelligently the potential pitfalls of the strategy.
January 16, 2008
Will inflation fears restrain the Fed?
I think not, and here's why.
January 14, 2008
The Implications of a Textbook Analysis of Macro Stabilization via Discretionary Fiscal Policy
If Bush and Congress are to act at all, they will have to move quickly to have any impact, says Alan Auerbach, an economics professor at the University of California, Berkeley, who has done research on the effects of fiscal stimulus.
"Timing is extremely important," he says. "Recessions typically last less than a year, so unless you can be pretty quick, it's not worth doing."
January 13, 2008
How low will Ben go?
Was 25, now we have 50. Do I hear 75?
January 09, 2008
What Are the Prospects for a Two Recession Bush Presidency?
With recession calls becoming more frequent (, , , , ) it might pay to revisit the indicators that the NBER looks at in determining the turning points in recessions (The fact that NBER put up some new recession-dating-FAQs just a couple days ago might be a leading indicator of sorts).
January 04, 2008
Economic indicators take a turn for the worse
No cheer for the New Year from the numbers released this week.
December 16, 2007
Monetary policy using the asset side of the Fed's balance sheet
An interesting trend has developed in the Federal Reserve's asset holdings, a trend that the newly created term auction facility is designed to accelerate.
December 12, 2007
Term auction facility
Will a new, improved discount window solve our problems?
A curious market reaction
I'm trying to make sense of the strong reactions to yesterday's action from the Federal Reserve.
December 01, 2007
Risk premia creeping higher
Since Halloween, financial markets seem to be getting spooked again.
November 21, 2007
Freddie Mac and Fannie Mae back in the news
So how worried should you be?
November 20, 2007
So now you know
As part of its ongoing efforts at helping the public understand exactly what its intentions might be, the Federal Reserve today released more detailed minutes of its October 30-31 meeting that included the Fed's expectations for what comes next.
November 13, 2007
New research on the causes of the housing boom and bust
What are the respective contributions of national and local factors to recent changes in house prices?
November 11, 2007
Oil, gold, the dollar, and inflation
Do the ongoing surge in gold and oil prices and slide in the dollar signal a resurgence of inflation?
October 31, 2007
Does Dollar Weakness 'Cause' High Oil Prices?
There's an idea floating around that asserts that the high price of oil is -- at least in part -- due to the weak dollar. Does this make sense?
October 19, 2007
Rules versus discretion in monetary policy
I had the privilege of attending a conference in St. Louis this week on Monetary Policy under Uncertainty at which I presented a paper on the response of interest rates to changes in the fed funds target. One of the interesting themes that came up in some of the other papers concerned whether the public's interests are best served when monetary policy follows mechanical rules as opposed to responding to events in a discretionary way. Here I report on some of the discussion of this issue from the conference.
October 17, 2007
Deteriorating lending standards
What is the significance of the fact that the most recently issued subprime mortgages are the ones that are running into the biggest problems?
October 11, 2007
Inferring market expectations from changes in fed funds futures prices
I recently completed a new research paper studying how interest rates of different maturities change with market expectations of what the Fed is going to do next.
October 08, 2007
What's a "Strong Dollar"?
I used to wonder about the use of this term a lot, at least in the context of government pronouncements. Here's my answer. First, the use of the term in context. From Bloomberg:
Weak Dollar Boosts Growth Without Fueling Inflation (Update1)
By Matthew Benjamin and Vivien Lou Chen
Oct. 8 (Bloomberg) -- Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.
October 03, 2007
Not all the news is bad
We've been dwelling here quite a bit on the bleak incoming housing data. But I have to admit that I'm not seeing that spilling over so far into some of the other key economic indicators.
October 01, 2007
Pick a finger
Princeton Professor Alan Blinder offers his thoughts in the New York Times on who's to blame for the mortgage mess, getting the attention of Mark Thoma, Dave Iverson, Brad DeLong, and Greg Mankiw. Here are my two cents.
September 25, 2007
More troubles for housing
New data released today portend continued weakness for housing.
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
September 23, 2007
Money creation and the Federal Reserve
There seem to be some misconceptions about the monetary consequences of actions that the Federal Reserve has taken to address liquidity needs.
September 20, 2007
Forward rates and inflation expectations
Forward rates on Treasury bonds tell an interesting story about the market's reaction to the Fed's interest rate cut on Tuesday.
September 19, 2007
Divining the Dollar
The dollar declines in response to the drop in the target Fed Funds rate. What next?
September 18, 2007
50 it is
For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday's fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
Four Observations on Import and Export Prices and the Dollar
Some delayed reflections on exchange rates, trade prices, and the messages from the August data.
September 15, 2007
Catch the wave
I keep trying to warn my friends in the Federal Reserve about the tsunami that's coming their way.
September 13, 2007
Saving Glut Redux
Bernanke recaps his interpretation of the explanation for global imbalances. Is it any more convincing than the first time?
September 10, 2007
By how much will the Fed cut rates?
Once again we're seeing a big divergence between what the markets expect the Fed to do and what the Fed expects the Fed to do.
September 02, 2007
The Taylor Rule and the housing boom
Stanford Professor John Taylor presented another very interesting paper at the Jackson Fed conference.
September 01, 2007
Comments on Housing and the Monetary Transmission Mechanism
Here are the comments that I delivered this morning at the Fed Jackson Hole conference.
Bernanke and Gramlich on the subprime issue
Also featured yesterday at the Federal Reserve conference in Jackson Hole were speeches by Fed Chair Ben Bernanke and former Fed Governor Edward Gramlich.
August 31, 2007
Report from Jackson Hole
Here are some brief impressions about this morning's papers at the Federal Reserve conference.
August 29, 2007
Update on the fed funds market
August 28, 2007
Solutions to the mortgage problem
Quick links to a few of the suggestions out there on what to do about pending mortgage defaults.
August 24, 2007
Latest economic indicators
August 22, 2007
Who knew holding short-term Treasuries could be so exciting?
August 20, 2007
What does the cut in the Fed's discount rate signal?
Some analysts, and perhaps the market, seemed to view Friday's cut in the Federal Reserve discount rate as a first step in lowering interest rates generally. That view may prove to be correct, though I'm inclined to look first for an explanation in terms of the narrow tactical challenges of managing current liquidity needs.
August 19, 2007
Saving Glut Reversed? A Historical Analogy and Conjecture about US Adjustment
One interpretation of recent global capital flows is that the collapse in investment in East Asia post-crisis, combined with stable saving rates in ex-China developing Asia, led to an excess of saving in that region (so really the term of "investment drought" is better). Note that there was no excess saving until the collapse of unsustainable lending associated with bubbles, or crony capitalism, or -- in other models -- behavior of investors implicitly "insured" against losses. While this is a voluminous literature, it's interesting to me that few analysts have observed that a similar occurence can not be ruled out in the current unfolding drama in the ever expanding but always containable subprime mortgage crisis.
August 11, 2007
Another roller coaster week
Glad I wasn't trying to provide a play-by-play explanation of fed funds futures last week. But whatever was going on, we seemed to end up with the same conclusion with which the week began.
August 10, 2007
What is a liquidity event?
It was an exciting week in financial markets, including some dramatic central bank interventions in short-term money markets.
August 04, 2007
Interpreting fed funds futures
Despite what you may have read elsewhere, the probability of a fed funds rate cut has increased significantly over the last few weeks.
August 01, 2007
July auto sales
This is not just another bad sales month.
July 26, 2007
No, this was not a good housing report.
July 19, 2007
Bernanke on the economic outlook
In testimony before the U.S. Congress yesterday, Fed Chair Ben Bernanke continued his policy of greater openness and transparency for Federal Reserve policy, trying to lay out clearly what the Fed is most worried about.
July 12, 2007
A Tipping Point for the Dollar?
In a post over a year ago, I observed that the relative stability of the dollar would come to an end as a confluence of events occurred. Those would be the end to rises in the US interest rates, and the continued increases in policy rates abroad, especially in the euro area and the UK, against a backdrop of a massive current account deficit that requires large and continuous infusions of saving from the rest of the world (and indeed consumes most of the world's excess saving).
Are your inflation expectations well-anchored?
Fed Chair Ben Bernanke's comments Tuesday about anchors for expected inflation left some analysts unsettled and others mystified. Bernanke was speaking to a group of academic researchers, and I believe his message was intended to provide some insights from practical policy-making to help improve the quality of academic research. So let me offer my interpretation of his message.
June 25, 2007
Inflation: Local or Global?
What does the empirical literature say about the sources of inflation movements in an era of globalization?
June 24, 2007
Following yields up and down
June 22, 2007
Econoblog on interest rates
I was pleased to participate in the latest Wall Street Journal Econoblog with Mark Zandi, Chief Economist and co-founder of Moody's Economy.com. Here's a brief preview of what you can find over at the WSJ.
June 20, 2007
Thinking about import prices, the dollar, and inflation
Some delayed reflections on the May import/export price release, and how to interpret the data in light of the empirics of exchange rate pass through.
June 17, 2007
More on those rising interest rates
Rising rates look scary, but I still read it as good news.
June 14, 2007
Lessons from the yield curve
The dramatic upward move of long-term interest rates gives me an opportunity to look back on some of the predictions made on the basis of the inversion of the yield curve, and what might be in store next.
May 19, 2007
Bernanke on subprime mortgages
If Bernanke isn't worried about subprime mortgages, should you be?
March 28, 2007
About that downside
March 17, 2007
Disappointing numbers on inflation and retail sales
March 11, 2007
Fannie, Freddie, and Ben
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
March 06, 2007
Financial or banking panics were a recurrent theme in 19th-century U.S. economic history.
March 05, 2007
Globalization and Inflation: Thinking about Identification
Recent news articles (, ) and blog posts (Economists View, Big Picture) have discussed Bernanke's March 2 speech on globalization and inflation.
February 28, 2007
Recent data leave me significantly more bearish than I was a month ago.
February 15, 2007
The market reads Bernanke's lips
The Fed Chair speaks, and the market jumps. But why?
February 11, 2007
How Paul Volcker became a practical monetarist
A bit of history I only recently learned.
January 27, 2007
The housing market and the Federal Reserve
More evidence that the housing market has stabilized, consistent with the recent policy stance of the Federal Reserve.
January 23, 2007
What would Milton do?
What with next Monday apparently having been declared Milton Friedman Day, I thought I might try to contribute to the festivities with some thoughts on how recent U.S. monetary policy might be evaluated from a Friedmanesque perspective.
January 19, 2007
Bernanke on the deficit
In testimony before the Senate Budget Committee yesterday, Fed Chair Ben Bernanke once again tells it like it is.
January 01, 2007
What will the Fed do next?
December 29, 2006
WIN buttons and Arthur Burns
I normally find myself agreeing with Dave Altig's high-quality analysis over at Macroblog. But I'm afraid I have to leave Dave all alone in his latest quixotic mission to defend Arthur Burns (Chair of the Federal Reserve during the great inflationary episode from 1970 to 1978) and Gerald Ford's old WIN buttons.
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
December 11, 2006
2006 and the Econbrowser crystal ball
This seems like a good time to review some of the occasions over the last year when I've been brave (or foolish) enough to make a specific quantitative prediction.
November 26, 2006
Housing: speculative bubble or fundamentals?
Caclulated Risk had some interesting observations this week about why forecasts for housing differ so widely across analysts.
November 13, 2006
The yield curve and the term premium
Some new studies suggest that the yield curve inversion might not be quite as ominous as some of us have been assuming.
November 02, 2006
Federal Reserve policy and mortgage rates
I've recently completed writing a research paper titled Daily Monetary Policy Shocks and the Delayed Response of New Home Sales. The paper develops some new measures of the delay between changes in Fed policy and the impact on the economy. In this, the second of three posts on the paper, I describe the paper's findings about how the Federal Reserve affects mortgage lending rates.
October 31, 2006
Accuracy of futures prices as predictors of the fed funds rate
I'm just finishing writing a new research paper whose goal is to come up with a better measure and understanding of the lagged effect of monetary policy on the economy. One of my claims is that the public's expectations of what the Fed is going to do next play a key role in that process. In this, the first of several posts based on that paper, I describe some of the properties I've found for fed funds futures prices as predictors of subsequent Fed policy changes.
October 19, 2006
One way or the other
Mixed signals this week leave Bernanke still needing to earn his pay.
October 13, 2006
Friday the thirteenth not so scary
The latest data on retail sales, tax receipts, and consumer sentiment all look consistent with the soft landing scenario.
October 03, 2006
And they all lived happily ever after
Can high-flying stocks be reconciled with an inverted yield curve? David Rosenberg of Merrill Lynch, via Felix Salmon and Business Week thinks "it is highly doubtful that both asset classes can be getting the story right." But here's one scenario under which both markets in fact might be telling the same story.
September 20, 2006
Watching housing slide
The Census Bureau yesterday released August data for housing permits and new housing starts, both of which confirm that we are in the midst of a significant housing downturn.
August 30, 2006
So where's the surge in inflation expectations, now that the Fed has stopped tightening?
August 11, 2006
Good and not-so-good reasons to disagree with Bernanke
Some of the reasons people have given for why the Fed should keep raising interest rates make sense to me, and some don't.
August 09, 2006
Could it be that we're already in a recession? Lessons from the last episode
There's a lot of talk about recession these days, despite the fairly rapid average growth of GDP in the past few quarters. Krugman (via DeLong) observes a slowdown is coming that might feel a lot like a recession. DeLong considers whether Fed policy has already raised rates to such a degree a recession is inevitable. Roubini bravely cites probabilities. My colleague James Hamilton provides a contrasting opinion, based upon his academic work with Chauvet [pdf].
August 08, 2006
Econbrowser (and hopefully Bernanke) gets it right
August 04, 2006
A pause it shall be
The last month has been something of a cliffhanger for Fed watchers. But today the market seemed to make up its mind.
July 31, 2006
About that pause
A few weeks ago I noted that the fed funds futures contracts seemed to reflect an expectation that we'd see one more rate hike this fall, and that would be it. But a lot can change in two weeks. Now the message looks more like, "that's it!"
July 24, 2006
Reading the yield curve
What are the implications of the current shape of the yield curve?
July 19, 2006
Bernanke's latest testimony
A more optimistic assessment from the Fed chair than I had been expecting.
July 14, 2006
Are we there yet?
Almost, but not quite, sayeth the fed funds futures.
July 02, 2006
The Fed speaks and markets listen
Tim Iacono at The Mess That Greenspan Made had some interesting graphs this week.
June 30, 2006
All eyes on housing
Mark Thoma notes that the most recent FOMC statement has changed from declaring growth is "likely to moderate" to "Recent indicators suggest that economic growth is moderating". The first stages of the long-anticipated cooling of the housing market certainly appear to be here now.
June 18, 2006
Inflation and the Fed
Certainly the recent inflation data have been-- Dave Altig says insert something negative here, so I'll just say "unwelcome". But when Fed Chair Ben Bernanke declared that's exactly the way he sees it, too, markets stood up and took notice. Let's review some of the dramatic market adjustments that have occurred since Bernanke's June 5 remarks.
June 10, 2006
Hawk or dove?
The pundits continue to be frustrated in their efforts to pigeonhole the Federal Reserve Chair.
June 06, 2006
Bernanke tells it like it is
Once again I recommend the most recent statement of our Federal Reserve Chair as some of the finest economic analysis you will find anywhere.
May 30, 2006
M3 or not M3?
In response to a post earlier this week on M2 and inflation, one of our readers asks why I looked at M2 rather than M3. Here's the answer.
May 28, 2006
M2 and inflation
High commodity prices and indications of rising inflation have renewed interest in the hypothesis that the U.S. has been increasing the money supply in recent years at an excessive rate.
May 17, 2006
We all understand that the Fed's next move depends on incoming data. But what if the incoming data raise concerns of both higher inflation and slower output growth?
May 02, 2006
Reading Bernanke's lips
I still say that many pundits are using the wrong paradigm for interpreting the public pronouncements of the new Federal Reserve Chair.
April 24, 2006
Who's afraid of $3 gasoline?
Does the expected strong 2006:Q1 GDP report mean that the economy will shrug off the recent resurgence of gas prices?
April 06, 2006
The yield curve and predicting recessions
Jonathan Wright, a brilliant research economist at the Federal Reserve Board, recently completed a very interesting paper titled The Yield Curve and Predicting Recessions. Wright's research seems to have been influential in Fed Chair Ben Bernanke's recent assessment that the current very flat yield curve does not signify a coming significant economic slowdown.
April 04, 2006
What's moving long-term yields?
Long-term interest rates continue to creep up.
March 29, 2006
Learning the new Fedspeak
Curious reaction from both markets and pundits to yesterday's statement from the FOMC accompanying the decision to boost the fed funds rate another 25 basis points.
March 19, 2006
The Bureau of Labor Statistics reported that inflation as measured by the seasonally adjusted consumer price index for all urban consumers rose only 0.1% in February (a 1.2% annual rate), down from 0.7% (an 8.4% annual rate) in January. Those who view the monthly CPI as the most important inflation indicator breathed a sigh of relief, perceiving the economy to have lurched from hyperinflation back to price stability within the space of 30 days.
March 08, 2006
Rising long-term yields
The yield on 10-year U.S. Treasuries is up almost 40 basis points so far this year, which means it's been gaining on the fed funds rate and reducing the prospect of full inversion of the yield curve. Why have rates been going up?
March 03, 2006
Autos limp forward
Could be better, could be worse.
February 15, 2006
The Bernanke era begins
New Fed Chair Ben Bernanke provided his first testimony before Congress this morning.
February 06, 2006
Gold and inflation
What's behind the ongoing run-up in gold prices? One popular interpretation is that investors fear a resurgence of U.S. inflation. But that story just doesn't square with the facts.
February 01, 2006
Should the Fed worry about going too far?
January 25, 2006
Soaring commodity prices
Is U.S. monetary policy behind the surge in commodity prices?
January 09, 2006
What's the Fed waiting for?
The Fed is likely to stop raising rates soon. What will be the final signal that enough is enough?
January 05, 2006
2005: the oil shock that didn't bite?
All but one of the recessions in the United States since World War II have been preceded by a dramatic increase in oil prices. Did we escape unscathed in 2005?
December 29, 2005
Who's afraid of the big bad yield curve?
December 17, 2005
The real yield curve
Economist's View reported last week on a letter from Alan Greenspan that addressed some questions about monetary policy posed for the Fed Chair by Representative Jim Saxton (R-NJ). I was particularly interested in Greenspan's explanation of why he is not concerned about the seemingly bearish connotations of the slope of the yield curve.
December 12, 2005
The gold standard and the Great Depression
How the gold standard contributed to the Great Depression.
November 30, 2005
Facing the latest economic data
Here are a few thoughts about some of the economic news that's been coming in over the last few weeks.
November 27, 2005
Inverted yield curve edges closer
If you haven't been worrying about the possibility of an inverted yield curve, now might be a good time to start.
November 20, 2005
Hedge fund risk
Psst-- want to earn a 41% annual return over a decade? Then read on.
November 13, 2005
Does it matter whether Bernanke is a Republican?
Mr. Dooley told us that the Supreme Court watches the election returns. So also must the Chair of the Federal Reserve.
November 02, 2005
Autos continue to tank
The worst October for U.S. auto sales in the last 13 years, it was.
October 24, 2005
Ben Bernanke: new Fed chair
Let me add my enthusiastic endorsement of the choice of Ben Bernanke to replace Alan Greenspan for chair of the Federal Reserve Board to the positive support earlier expressed at Marginal Revolution, the Big Picture, New Economist, Economist's View, and Angry Bear.
October 23, 2005
Ford joins the club
Having commented on a number of occasions about General Motors' woes, and striving to be an Equal Opportunity PunditTM, it's only fair to give credit where credit is due. Ford this week showed that it can compete with the best of them in terms of losing money, posting a loss on its North American operations of $1.2 billion for the third quarter and $2.4 billion over the last 15 months. I'm not sure what advice to give Ford. But here's what I think we might expect from U.S. policy makers.
October 14, 2005
Does today's CPI release indicate that inflation has returned?
October 11, 2005
Do recent energy shocks mean we might see a replay of the 1970's stagflation? I believe not, and here's why.
October 02, 2005
But you said that more saving was a good thing
After many of us have been arguing for some time that an increase in the U.S. personal saving rate was key for promoting long-run growth and reducing the trade deficit, the American consumer finally obliged with a 0.5% drop in consumption spending in August. But analysts such as Angry Bear and Macroblog see this as an ominous development. So which is right-- is more saving a good thing or a bad thing for the economy?
September 25, 2005
Responding to supply shocks
It seems pretty clear to me that a monetary contraction isn't the appropriate policy response to a supply shock. Apparently there are those within the Federal Reserve who see things differently.
September 19, 2005
Consumer confidence plunges
Yet another key leading indicator turns gloomy. How much can the stock market and the Fed shrug off?
September 16, 2005
Who cares about core inflation?
This is another one of those months when you could report pretty much any number you like to summarize the current inflation rate, and, as William Polley noted, newspapers did. At times like these, the concept of "core inflation" can be very helpful.
September 12, 2005
Hurricane? What hurricane?
Amazingly, gasoline futures on the New York Mercantile Exchange today ended back where they were before Hurricane Katrina struck with all its fury. Retail prices will likely follow that lead. But what about the Fed?
August 25, 2005
Recession in 2006-07?
If you just extrapolate the dynamics of past economic expansions, you'd say that a recession within the next few years is quite possible but by no means certain. The question is how much weight you want to attach to some of the other factors.
August 17, 2005
Talk of recession
Nine out of the ten recessions in the United States since World War II were preceded by a spike in oil prices. Nevertheless, for the past year, I've been telling people that this time it's going to be different-- the economy could weather the rising price of oil without a downturn. Developments of the last couple of weeks make me a little more concerned.
August 08, 2005
Is there a danger that the Fed will fall behind the inflation curve?
Both Macroblog and Capital Spectator raise the prospect today that rising long-term yields might mean that the Fed waited too long before trying to stamp out the cinders of an incipient inflation fire. I would suggest instead that the increase in long-term yields over the last few months is the natural development that we expect to see in a situation of Fed tightening and has little to do with inflationary expectations.
August 04, 2005
When should we worry about the yield curve?
The slope of the yield curve is likely to become an increasingly bearish indicator as this year progresses, and recent changes in the calculation of the index of leading economic indicators should not be interpreted as in any way denying that fact.
July 25, 2005
Why the Fed needs to slow down
The Fed has promised to keep on raising interest rates at a "measured pace." I just prefer they'd measure their pace a little more slowly.
July 13, 2005
The puzzle of long-term yields
Sherlock Holmes solved one of his cases by noticing a dog that didn't bark. Well, here are a few canines that don't seem to be yipping around the decline in long-term bond yields.
July 06, 2005
How high will the Fed push interest rates?
Here's one way you can figure out if you've pulled the car far enough into your garage-- if you run into the wall, you went too far. Hopefully the Fed has another plan for how to decide when to stop raising the fed funds rate.
June 18, 2005
Babble about a housing bubble
There's been much discussion recently of whether the U.S. is experiencing a speculative bubble in house prices. Like previous historical bubble sightings, this one only seems to pop up in situations where the fundamentals on their own might justify significant price increases.
June 13, 2005
Worries about the yield curve
The yield curve has inverted eight times in the last half century, and in six of those episodes, the U.S. ended up in recession. Some analysts are concerned that we may see a ninth inversion before the end of this year.
June 08, 2005
Predicting the Fed's next move
Fed-watching can be something of an arcane sport. Will the subtle disappointments in the May employment and automobile sales figures persuade the Fed to hold back on another interest rate hike? And what would someone who's really "in the know" infer from how high Alan Greenspan raised his right eyebrow at his last public appearance? Although playing that game can be fun, it's actually quite easy for anybody to have a very well-informed belief about what we can expect next from the Federal Reserve.