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This paper studies the effects of Federal Open Market Committee (FOMC) forward guidance language. I estimate two policy surprises at FOMC meetings: a change in the current federal funds rate and an orthogonal change in the expected path of the federal funds rate. From February 2000 to June 2003, the FOMC only gave forward guidance about risks to the economic outlook, and a surprise increase in the expected federal funds rate path had expansionary effects. This is consistent with models of central bank information effects, where a positive economic outlook causes private agents to revise up their expectations for the economy. From August 2003 to May 2006, the FOMC also gave forward guidance about policy inclinations, and a surprise increase in the federal funds rate path had contractionary effects. These results are consistent with standard macroeconomic models of forward guidance. Overall, the effects of forward guidance depend on the FOMC's choice to use one or both of the economicoutlook and policy-inclination aspects of forward guidance. [ABSTRACT FROM AUTHOR]

This study examines the forecasting performance of inflation swaps and survey-based expectations for one-year inflation. Conducting this exercise helps determine if one set of expectations can provide a cleaner signal about future inflation. The study finds that, overall, inflation swaps more frequently provide better forecasts of future inflation. Previous studies that found poor performance of swaps were strongly influenced by liquidity issues during the financial crisis and the pandemic. When these periods are excluded, swaps have superior predictive ability. Our analysis suggests that combining the two expectations can lead to even better forecasts. The optimal static combination is roughly an equal weighting of swaps and surveys. Alternatively, a dynamic smooth-transition regime switching model can also lead to superior performance and provide a clearer signal on expectations of future inflation. Recently, this measure has implied the Federal Reserve is expected to be closer to its inflation target over the next year than the surveys would suggest. [ABSTRACT FROM AUTHOR]

This paper develops a monetary model with taxes to account for the apparently asymmetric and time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data. In our model, the real effects of an energy shock are amplified when the monetary authority responds to that shock by changing its inflation objective. Specifically, higher inflation raises households' nominal capital gains taxes since those taxes are not indexed to inflation. The increase in taxes behaves as a negative wealth effect and generates an immediate decline in output, investment, and hours worked. The large drop in investment then causes a gradual but very persistent decline in the capital stock. That protracted decline in the capital stock is associated with an extended period of low productivity growth and high inflation. Those real effects from the increase in nominal capital gains taxes are magnified by the tax on nominal interest income, which is also not indexed to inflation. A prolonged period of higher inflation and lower productivity growth following a negative energy shock is consistent with the stagflation of the 1970s. The negative effects, however, subsided greatly after 1980 because the Volcker disinflation policy prevented the Fed from accommodating negative energy shocks with higher inflation. [ABSTRACT FROM AUTHOR]

Central banks and the United States Federal Reserve have a tendency to change short-term interest rates in a series of small steps in the same direction and occasionally reverse the direction of interest rate movements. In this paper, the authors argue that interest rate smoothing may well represent the optimal behavior on the part of central banks whose only objectives are to stabilize output and inflation. They present empirical results from previous research papers that offer three explanations of interest rate smoothing: 1) forward looking behavior by market participants, 2) measurement error associated with key macroeconomic variables, and 3) uncertainty regarding relevant structural parameters. This working paper is available at the US Federal Reserve Board. You can access this site by going to www.federalreserve.gov/pubs/workingpapers.htm.

Financial network structure is an important determinant of systemic risk. This paper examines how the establishment of the Federal Reserve and Great Depression affected U.S. interbank network structure. Seeking liquidity sources, banks generally preferred to connect to Federal Reserve member banks in cities with Fed offices or clearinghouses. Overall network concentration declined initially as banks connected to Federal Reserve cities other than New York, but increased in the Depression. Banks that survived the Depression generally had higher percentages of connections to Federal Reserve cities and to correspondent banks that also survived. [ABSTRACT FROM AUTHOR]

Credit plays a critical role in the agricultural sector, but many studies suggest that farmers are credit constrained. We examine the degree to which changes in non-realestate agricultural loans at commercial banks are driven by changes in supply and demand, using information provided by agricultural lending surveys conducted by the Federal Reserve Banks of Chicago, Kansas City, and Minneapolis. Building on recent studies of loan officer opinion surveys, we estimate the changes in agricultural loan supply and demand using an unbalanced panel of 1,024 banks across 191 quarters (2002:Q1–2021:Q2). The survey responses provide instruments of “pure” supply and demand changes that allow us to examine fluctuations in bank-level agricultural loan volumes. We find that changes in the volume of non-real-estate farm loans at commercial banks are principally driven by changes in excess demand for loans. In addition, we demonstrate that excess loan demand is countercyclical to aggregate farm income. [ABSTRACT FROM AUTHOR]

This paper reports monthly estimates of U.S. cross-border securities positions obtained by combining the (now) annual TIC surveys with monthly transactions data adjusted for various differences in the two reporting standards. Our approach is similar to that of Thomas, Warnock and Wongswan (2004), but in addition to having a somewhat larger dataset we are able to make some simplifications to the numerical procedure used and we incorporate additional adjustments to the transactions data. This paper describes the procedure used and presents the monthly results. In addition, we discuss how the procedure can be extended to extrapolate holdings estimates beyond the most recent survey values. We focus primarily on U.S. liabilities to foreign holders, because more data is available than for U.S. claims, but we show how our methodology can be applied to U.S. claims as well. We also provide some guidance on how the changes in estimated holdings can be decomposed into flows, valuation changes, and other factors. Time series of estimates of holdings, by country, are available for download. [ABSTRACT FROM AUTHOR]

This paper studies when and by how much the Fed and the ECB change their target interest rates. I develop a new nonlinear bivariate framework, which allows for elaborate dynamics and potential interdependence between the two countries, as opposed to linear feedback rules, such as a Taylor rule, and I use a novel real-time data set. A Bayesian estimation approach is particularly well suited to the small data sample. Empirical results support synchronization between the central banks and non-zero correlation between magnitude shocks, but they do not support follower behavior. Institutional factors and inflation represent relevant variables for timing decisions of both banks. Inflation rates are important factors for magnitude decisions, while output plays a major role in US magnitude decisions. [ABSTRACT FROM AUTHOR]

The authors consider financial market effects of United States Federal Reserve disclosure practices. Market participants had to infer the stance of the U.S. monetary policy according to the type and size of the open market operations conducted by the Federal Reserve's Trading Desk. Investors were exposed to uncertainty about the time and the motivation for monetary policy actions. Since that time, changes in disclosure practices regarding monetary policy decisions have potentially mitigated both types of uncertainty. The authors examine the way financial market instruments respond to unanticipated policy decisions. This working paper is available at the US Federal Reserve Board. You can access this site by going to www.federalreserve.gov/pubs/workingpapers.htm.

The United States Congress created the Federal Reserve System in 1913. The System consists of the Federal Reserve Board in Washington, D. C.; 12 Federal Reserve Banks; and thousands of member commercial banks. This entry describes the evolution of the System and of monetary policy from its foundation through 2013. [ABSTRACT FROM AUTHOR]

This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tightening that included increasing these policy rates been achieved without reliance on reductions in reserves or other deposits held at the central bank? The foreign experience suggests that policy rate floors can be effective lower bounds for market rates, although incomplete access to central bank accounts and interest on them weakens this result. In addition, the foreign experience suggests that tightening by increasing the interest rate paid on central bank balances can help reduce or eliminate the need to drain balances. These results are consistent with theoretical results that show that tightening without draining is possible, irrespective of whether excess reserves are large or small. [ABSTRACT FROM AUTHOR]

Previous research indicated that the daily liquidity effect, or the change in the federal funds rate associated with an exogenous change in Fed balances, varies with several factors including the day of the maintenance period. In this paper, we examine the data over the recent period of increased Federal Reserve transparency and find that the liquidity effect stabilized across days of the maintenance period. Rather, the liquidity effect may be a function of the uncertainty about banks' end-of-day balances. Moreover, we find that increased transparency led to a larger liquidity effect on the days prior to an FOMC meeting. [ABSTRACT FROM AUTHOR]

The article reflects on the access of nonbank financial firms to Federal Reserve Bank in the U.S. which is considered as "Lender of Last Resort." It mentions that the term refers to as a central bank of a country that offers loan to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. It notes the availability of repurchase agreements and commercial paper to nonbank financial firms to avoid liquidity.

From July 2010 until June 2015, the Federal Reserve made over 16,000 loans to financial institutions through the discount window. Recent regulations mandate the release of detailed information about individual loans two years after their occurrence. We study the newly available loan data and uncover the main patterns that broadly describe activity at the Fed's discount window in recent years. [ABSTRACT FROM AUTHOR]

This narrative investigates the frictions that existed between the Federal Reserve's monetary policies and the US Treasury's debt-management operations from the onset of the Second World War through the end of the Federal Reserve's even-keel actions in mid-1975. The analysis suggests that three factors can help explain why the Federal Reserve compromised the attainment of its statutorily mandated monetary-policy objectives for debt-management reasons: 1) the existence of an existential threat, 2) the fear that to do otherwise would create instability in the banking sector, and 3) the vulnerability of Treasury financing operations to monetary-policy actions that existed when the Treasury did not auction its debts. [ABSTRACT FROM AUTHOR]

In this article, the author discusses the proposed novel empirical analysis to examine the evolution in credibility of the European Central Bank (ECB). She mentions that the ECB credibility has increased while the Federal Reserve Bank has been comparatively stables. She states that authors of the proposed novel use high-frequency asset price data to examine the time variation in the response of American and European yield curves to inflation news.

How did pre-Fed banking crises end? How did depositors' beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility; that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash (a currency premium) in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero. [ABSTRACT FROM AUTHOR]

The article focuses on the U.S. Congressional Research Service it reports on economic forecasts and future economic and financial indicators that are used to assess the chances for major occurrences and estimate the effects of policy actions. It includes government and business organizations that make economic forecasts and projections, such as the Congressional Budget Office, Federal Reserve Banks, and international organizations.

The article reflects on the potential costs of the Federal Reserve Bank in the U.S. in making loans to nonbanks. It refers on the Section 13(3) of the Federal Reserve Act of the Board of Governors of the Federal Reserve System in the U.S. It notes that the potential costs of lending to nonbanks can be divided into risks to taxpayers and broader economic consequences.

The article discusses the restrictions on the Section 13(3) of the Federal Reserve Act of the Board of Governors of the Federal Reserve System in the U.S. It mentions that the Section 13(3) of the Federal Reserve Act was added in 1932. It notes that the restrictions did not prevent the Federal Reserve from taking several unorthodox actions in 2008.

The article discusses how lending by regional Federal Reserve Banks to depository institutions work and their role on reserve adjustment and Federal Reserve monetary control procedures. Tables are presented which include borrowing from the discount window and examples of discount window transactions.

The article reports on how the U.S. Federal Reserve executes monetary policy. Topics covered include the components of the Fed's Federal Open Market Committee, two methods used by the Federal Reserve to maintain its target for the federal funds rate, and its decision to reduce the federal funds target by 0.25 percentage points in July 2019.

Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent. [ABSTRACT FROM AUTHOR]

The article discusses the international economic forecasting between 2008 to 2009. The global gross domestic product growth, measured using purchasing power parity is expected to be 3.8% in 2008 and 3.9% in 2009. Federal Reserve banks are forecasted to cut their key intervention rates. Both oil and non-oil commodity prices are expected to rise in 2008, adding to inflationary pressures, but decline in 2009. A steady export growth and capital inflow is expected, despite an interest rate cut.

The article focuses on political and economic conditions in Hong Kong, China for the 2005-2006 session. The September 12, 2004 Legislative Council election produced a partial setback for the pro-democratic camp in Hong Kong. The broad economic policy challenge facing the Hong Kong government in 2005-2006 is to maximise the benefits accruing from the rapid economic development of China while minimising the costs. Owing to the fixed exchange rate between the Hong Kong and the U.S. dollars, local interest rates are indirectly determined by the Federal Reserve, rather than by the Hong Kong Monetary Authority.

Monetary policy can be defined broadly as any policy relating to the supply of money. Since the main agency concerned with the supply of money is the nation's central bank, the Federal Reserve, monetary policy can also be defined in terms of the directives, policies, statements, and actions of the Federal Reserve, particularly those from its Board of Governors that have an effect on aggregate demand or national spending. The nation's financial press and markets pay particular attention to the pronouncements of the chairman of the Board of Governors, the nation's central banker. The reason for this attention is that monetary policy can have important effects on aggregate demand and through it on real Gross Domestic Product (GDP), unemployment, real foreign exchange rates, real interest rates, the composition of output, etc. It is paradoxical, however, that these important effects, to the extent that they occur, are essentially only short run in nature. Over the longer run, the major effect of monetary policy is on the rate of inflation. Thus, while a more rapid rate of money growth may for a time stimulate the economy, leading to a more rapid rate of real GDP growth and a lower unemployment rate, over the longer run, these changes are undone and the economy is left with a higher rate of inflation. In some societies where high rates of inflation are endemic, more rapid rates of money growth fail to exercise any stimulating effect and are almost immediately translated into higher rates of inflation. Traditionally, two means have been used to measure the posture of monetary policy. Since monetary policy involves the Federal Reserve's contribution to aggregate demand or money spending, it would be logical to examine the growth rate of the money supply. A growing money supply is important for the subsequent growth in money spending or aggregate demand. Giving empirical content to the abstract concept of "the supply of money" has not been easy. For the United States, three different collections of assets have been defined as "money" and labeled M1, M2, and M3. Unfortunately, over the period 1990-2005, these aggregates have not been consistently linked to money spending and, consequently, they are not the major focus of monetary policy. Rather, the Federal Reserve executes monetary policy by setting a target for an overnight interest rate called the federal funds rate. Low or falling rates are usually taken as a sign of monetary ease; high or rising rates usually indicate monetary tightness. Changes in the federal funds rates affect primarily short-term interest rates, and through these changes, money spending. Between January 3, 2001, and June 25, 2003, the target rate for federal funds was reduced to 1% from 6=%. This policy was reversed beginning June 30, 2004. In 17 equal increments of <% ending on June 29, 2006, the target rate was raised to 5<% from a base of 1%. No changes were made at the August 8 meeting. This report will be updated periodically as new data become available. [ABSTRACT FROM AUTHOR]