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Presents a list of working papers from the Federal Reserve Bank of Saint Louis, Missouri in 2003. "Asymmetric Common Trends: An Application of Monetary Policy in a Markov-Switching VECM," by Neville Francis and Michael T. Owyang; "FOMC Forecasts: Is All the Information in the Central Tendency?," by William T. Gavin; "Does Consumer Sentiment Predict Regional Consumption?," by Thomas A. Garrett.

Presents several working papers from the Federal Reserve Bank of Saint Louis, Missouri which contain preliminary results of staff research as of 2002.

Introduces the papers published in the July/August 2005 issue of "Federal Reserve Bank of St. Louis Review."

This paper develops a generalization of the formulas proposed by Kuttner (2001) and others for purposes of measuring the effects of a change in the federal funds target on Treasury yields of different maturities. The generalization avoids the need to condition on the date of the target change and allows for deviations of the effective fed funds rate from the target as well as gradual learning by market participants about the target. The paper shows that parameters estimated solely on the basis of the behavior of the fed funds and fed funds futures can account for the broad calendar regularities in the relation between fed funds futures and Treasury yields of different maturities. Although the methods are new, the conclusion is quite similar to that reported by earlier researchers—changes in the fed funds target seem to be associated with quite large changes in Treasury yields, even for maturities of up to 10 years. [ABSTRACT FROM AUTHOR]

Comments on the study conducted by Dan Thornton which determined the effectiveness of daily data to estimate liquidity effects on the federal funds market in the United States. Overview of modern macroeconomic literature on liquidity effects; Discussion on a model of the federal funds market; Examination of the relationship between money and nominal interest rates in response to monetary policy innovations.

This article is based on the Homer Jones Memorial Lecture delivered at the Federal Reserve Bank of St. Louis, November 2, 2023. Headline inflation in the euro area declined rapidly to 2.9% in October 2023 from its peak of 10.6% one year earlier. The bulk of this large drop reflected the substantial decline in the contributions from energy and food inflation. Once these base effects reverse, continued disinflation relies critically on monetary policy succeeding in reducing underlying inflation in a steady and timely manner. The last mile is about this change in the disinflation process. Large uncertainty around the appropriate calibration and effective transmission of monetary policy, together with the risk of new supply-side shocks pulling inflation away from our target once again, makes this part of the disinflation process the most difficult. In particular, monetary policy transmission may be weaker, or less direct, than in the past, given the share of less-interest-rate-sensitive services industries in total activity has increased steadily in the euro area and globally over the past few decades. In addition, persistent worker shortages have muted the transmission through the labor market, with unemployment at record low levels despite the sharp increase in interest rates. So, although progress on inflation so far is encouraging, the disinflation process during the last mile will be more uncertain, slower, and bumpier. Continued vigilance is therefore needed. [ABSTRACT FROM AUTHOR]

Ted Balbach served as research director at the Federal Reserve Bank of St. Louis from 1975 to 1992. This paper lauds his contributions during that time, including the expanded influence of the Review, enhanced databases and data publications, and a visiting scholar program that attracted leading economists from around the world. Balbach is remembered fondly as a visionary leader and gracious mentor. [ABSTRACT FROM AUTHOR]

Comments on the model developed by John Taylor which illustrated how the United States Federal Reserve Bank System affect the federal funds rate. Functions of federal reserve banks for depository institutions; Implications of Taylor's model on the daily management of Federal bank reserves; Evaluation of the Trading Desk reaction function used by Taylor to describe the Desk operations of the Federal Reserve.

Provides information on monetary services indexes (MSI). Difference of MSI with monetary aggregates; Account on the monetary aggregates published by the Federal Reserve Board; Methodology used for measuring MSI.

The article relates the author's view on the study by J. Hamilton which assesses the affects of monetary policy using daily federal funds futures contracts in the U.S. The author asserts that the signal-extraction approach to determine the market's reaction of the study allows the market's reaction to be estimated using an entire sample and allows the measurement of financial markets' response to evolving expectations of future federal actions.

This article discusses the linkages between two recent themes in economic research: "real time" data and replication. These two themes share many of the same ideas, specifically, that scientific research itself has a time dimension. In research using real-time data, this time dimension is the date on which particular observations, or pieces of data, became available. In work with replication, it is the date on which a study (and its results) became available to other researchers and/or was published. Recognition of both dimensions of scientific research is important. A project at the Federal Reserve Bank of St. Louis to place large amounts of historical data on the Internet holds promise to unify these two themes. [ABSTRACT FROM AUTHOR]

Introduces a series of articles on monetary policy which were presented in the 2001 Annual Policy Conference of the Federal Bank of Saint Louis.

Describes the monetary services index (MSI) project of the Federal Reserve Bank of St. Louis. Distinction between real and nominal monetary asset stocks and user costs; Monetary services index and dual user cost; Indexes in the MSI database; Problems that arise in the construction of monetary services indexes; Conclusion.

In October 1979, Federal Reserve Chairman Paul Volcker persuaded his Federal Open Market Committee (FOMC) colleagues to adopt a new policy framework that (i) accepted responsibility for controlling inflation and (ii) implemented new operating procedures to control the growth of monetary aggregates in an effort to restore price stability. These moves were strongly supported by monetarist-oriented economists, including the leadership and staff of the Federal Reserve Bank of St. Louis. The next three years saw inflation peak and then fall sharply but also two recessions and considerable volatility in interest rates and money supply growth rates. This article reviews the episode through the lens of speeches and FOMC meeting statements of Volcker and St. Louis Fed president Lawrence Roos and articles by Roos's staff. The FOMC adopted monetarist principles to establish the Fed's anti-inflation credibility, but Volcker was willing to accept deviations of money growth from the FOMC's targets, unlike Roos, who viewed the targets as sacrosanct. The FOMC abandoned monetary aggregates in October 1982 but preserved the Fed's commitment to price stability. The episode illustrates how Volcker used a change in operating procedures to alter policy fundamentally and later adapt the procedures to changed circumstances without abandoning the foundational features of the policy. [ABSTRACT FROM AUTHOR]

The Federal Reserve devotes significant resources to forecasting key economic variables such as real gross domestic product growth, employment, and inflation. The outlook for these variables also matters a great deal to businesses and financial market participants. The authors present a factor augmented Bayesian vector autoregressive forecasting model that significantly outperforms both a benchmark random walk model and a pure time-series model. They then use these factors in an ordered probit model to develop the probability distribution over a 12-month horizon. One distribution assesses the probability that inflation will exceed 2.5 percent over the next year; they term this probability a price pressure measure. This price pressure measure would provide policymakers and markets with a quantitative assessment of the probability that average inflation over the next [ABSTRACT FROM AUTHOR]

In this article, time-series models are developed to represent three alternative, potential monetary policy regimes as monetary policy returns to normal. The first regime is a return to the high and volatile inflation rate of the 1970s. The second regime, the one expected by most Federal Reserve officials and business economists, is a return to the credible low inflation policy that characterized the U.S. economy from 1983 to 2007, a period known as the Great Moderation. The third regime is one in which policymakers keep policy interest rates at or near zero for the foreseeable future; Japanese data are used to estimate this regime. These time-series models include four variables: per capita gross domestic product growth, consumer price index inflation, the policy rate, and the 10-year government bond rate. These models are used to forecast the U.S. economy from 2008 through 2013 and represent the possible outcomes for interest rates that may follow the return of monetary policy to normal. Here, "normal" depends on the policy regime that follows the liftoff of the federal funds rate target expected in mid-2015. (JEL E43, E47, E52, E58, E65) [ABSTRACT FROM AUTHOR]

The essence of quantitative easing (QE) is reducing the cost of private borrowing through large-scale purchases of privately issued debt instead of public debt (Bernanke, 2009). Considering the economy has drastically recovered, it is time to consider how exiting from these private asset purchases will affect the economy. In a standard economic model, if monetary injections can increase aggregate output and employment, then the reverse action may undo such effects. But does this imply that the U.S. economy will dive into another recession once the Fed starts its large-scale asset sales (under the assumption that QE has successfully pulled the economy out of the Great Recession)? This article studies the likely impact of QE and its exit strategy on the economy. In particular, it shows that three aspects of the Federal Reserve's exit strategy are important in achieving (or maintaining) maximum gains (if any) in aggregate output and employment under QE: (i) the timing of the exit, (ii) the pace of the exit, and (iii) the private sector's expectations of when and how the Fed will exit. [ABSTRACT FROM AUTHOR]

The current financial turmoil has generated considerable discussion of liquidity. Moreover, it has been widely reported that the Federal Reserve played a major role in supplying liquidity to financial markets during this distressed time. This article describes two ways in which the Fed has supplied liquidity since late 2007. The first is traditional: The Fed supplies liquidity by providing credit through open market operations and by lending to depository institutions at the so-called discount window. The second is by enhancing the liquidity of portfolios of some institutions by replacing their less-liquid assets with more-liquid assets. The Fed has used the second approach since late 2007. Unlike several previous occasions, however, it began supplying liquidity in the first, more traditional way only recently—in September 2008. This article notes that the Fed departed from its long-standing tradition of minimizing its effect on the allocation of credit by supplying liquidity to institutions that it believed to be most in need; at the same time, it neutralized the effects of these actions on the total supply of liquidity in the financial market. The article also discusses the Fed's reasons for reallocating credit this time rather than simply increasing the total supply of financial market liquidity. [ABSTRACT FROM AUTHOR]

Focuses on the U.S. Federal Reserve's use of government securities for conducting monetary policy. Open market operations in U.S. government securities; Sources of Federal Reserve credit; Federal Reserve's response to a decline in economic activity.

Investigates whether the liquidity effect can be identified by estimating the daily federal funds market data. Development of a reserve market model based on the operating procedure of the United States Federal Reserve Bank System; Limitations of the methodology developed by Hamilton to estimate liquidity effect based on daily frequency; Discussion on an alternative method to estimate liquidity effect on daily frequency.

Discusses the development of a model of the federal funds market which illustrated how the United States Federal Reserve System affect federal fund rates. Changes which affect the federal funds market; Details on the structure and trading at federal funds market; Analysis of the time series properties of federal funds rates; Comparison of the model with classic models of supply and demand for reserves.

Provides information on a study which presented two distinct measures of inertia in the target federal funds rate changes. Discrete nature of target changes; Examination of Taylor-rule specification of the target federal funds rate; Conclusions.

Investigates several hypotheses concerning market reactions to changes in the federal funds rate in the United States Federal Reserve Bank during the period between 1989 to 1997. Variation of market's reaction to magnitude of target changes; Effect of discount rate change on market's reaction; Effect of changes in policy direction.

Opinion. Presents the author's view on the article bout the payments system of the United States in the early twentieth century. Definition of a check; Method for collecting out-of-town checks; Examination of the domestic exchange rates in the period before the Federal Reserve was founded.

Focuses on the payment functions of the Federal Reserve of the United States. Description of the payments system before Congress established Federal Reserve; Theoretical framework for examining the effects of innovations on payments system efficiency; Description of the legal foundation of the Fed's collection services. INSETS: Did nonpar banks earn economic rents?;The role of express companies in check collection.

Discusses reasons for the declining Reserve Bank share of payments processing and the implications of the trends for the payment system. Problems with payment system prior to formation of the Federal Reserve; Conceptual framework for the operation of the payment system and the role of the Reserve Banks; Implications of reductions in reserve bank services; More. INSETS: MCA guidelines for pricing bank services.;Calculating the FED's share.;Same-day settlement: RISK ...