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This paper explains a systematic way to code qualitative text data to generate causal maps for system dynamics modeling. The study was motivated by the important role qualitative data play in system dynamics and the need for formal methods to document the interpretive process of using text data in modeling. The coding method elucidated in the study was influenced by grounded theory, a flexible, yet rigorous way to build a theory from raw qualitative data. The inductive nature of grounded theory generation fits well with the conceptualization phase of simulation modeling. This paper uses verbatim transcripts from the Federal Open Market Committee meetings to illustrate the coding and mapping process, and it provides practical guidelines for systematic and reliable ways to ground simulation models in qualitative text data in order to build higher levels of confidence in models. Copyright © 2012 System Dynamics Society. [ABSTRACT FROM AUTHOR]

In the wake of an unprecedented increase in the trade policy-related uncertainty of the US since 2017, we analyze the ability of a newspaper-based trade policy uncertainty index (TPU) of the US in predicting the growth rate of emerging market economies. The newspaper-based trade policy uncertainty index was developed by Caldara et al. (2020), while GDP data was obtained from the Global Economic Database maintained by the Federal Reserve Bank of Dallas, in the form of an aggregate value for all emerging economies. We analyze the data in a bi-variate VAR(2) setup, with the number of lags identified using Akaike Information Criterion, using the novel multivariate time-varying causality framework developed by Rossi and Wang (2019) on an effective sample of 1984:Q3 to 2019:Q3. Starting with the standard constant parameter Granger causality test, we find no evidence of TPU to the growth of GDP. We then proceed with the time-varying parameter causality test of Wang and Rossi (2019), where we find overwhelming evidence of the role of trade uncertainty in impacting the growth of emerging markets in a statistically significant manner, with the effect being on the rise since the Great Recession. Our results are robust to the usage of an alternative econometric methodology, metric of trade uncertainty, and also over an out-of-sample forecasting exercise. While the time-varying predictive analysis is the focus of our paper, causality tests are silent about the sign of the impact of TPU on the GDP growth of the emerging markets. Given this, we estimate a time-varying parameter VAR model with stochastic volatility (TVP-VARSV). We find that the impact is sharp and negative. Our results imply that policymakers in emerging countries must be aware of the possible threat of an upcoming recession in the wake of heightened trade policy uncertainty in the US, and hence, must be ready to undertake necessary (expansionary) policies to prevent a downturn in their respective domestic economies. To draw optimal policy responses, authorities would need to utilize time-varying econometric models, since the effect of uncertainty related to trade policies of the US are indeed non-constant over time. [ABSTRACT FROM AUTHOR]

This paper provides new evidence on the rise of the dollar as an international currency, focusing on its role in the conduct of trade and the provision of trade credit. We show that the shift to the dollar occurred much earlier than conventionally supposed: during and immediately after World War I. Not just market forces but also policy support-the Fed in its role as market maker-was important for the dollar's overtaking of sterling as the leading international currency. On balance, this experience challenges the popular notion of international currency status as being determined mainly by market size. It suggests that the popular image of strongly increasing returns and pervasive network externalities leaving room for only one monetary technology is misleading. [ABSTRACT FROM AUTHOR]

Infant mortality rates in 34 Sub-Saharan African countries (1960–2016), obtained from the Federal Reserve Bank of St. Louis database, were examined in this paper by focusing on the degree of persistence and non-linearities in the growth rate series. Persistence deals with the degree of association between the observations. Non-linearity occurs when departing from the linear assumption as in a time trend. These two issues are relevant in this context because they are intimately related. Based on the high degree of persistence observed in the series examined, instead of investigating structural breaks, which produce abrupt changes in the data, a non-linear approach was used based on Chebyshev polynomials in time, producing smooth rather than abrupt changes. This approach has never been examined in a unified framework in the treatment of infant mortality rates. The results indicate that half of the countries examined display non-linearities and the orders of integration of the series are extremely large in all cases, being around two in the majority of them. Looking at the growth rate series, significant negative trends were observed for: Chad, Equatorial Guinea and Mozambique. Evidence of mean reversion and thus transitory shocks, were observed for Lesotho, Rwanda, Botswana and Mozambique. Time dynamics of the series were expected to persist in order to ascertain the decline in mortality rates. Therefore, serious government interventions are required in managing infant health in these countries. [ABSTRACT FROM AUTHOR]

The New York stock market was plagued by a series of financial crises during the National Banking Era, culminating in the Panic of 1907. The traditional view holds that the crises were rooted in structural flaws related to trade settlement as well as excessive and indiscriminate margin lending that remained unaddressed until the formation of the Federal Reserve Bank. An examination of the historical record, however, shows that brokers sought to control contagion and spillover effects through reform of the settlement process and by modulating margin lending rates and maintenance requirements according to macroeconomic conditions, counterparty credit‐worthiness and market volatility. Using newly gathered archival data, we show that the New York Stock Exchange enacted macro‐prudential regulations that may have reduced the severity of crises during this period. By providing early evidence of private sector responses to rising systemic risk, the paper addresses an important aspect of early market microstructure. [ABSTRACT FROM AUTHOR]

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]

Why does the Federal Reserve bail banks out in violation of a core principle of free-market capitalism: private gain–private loss? This article argues the Fed rescues banks not because it is captured by financial interests, but because it is captured by the paradigm of 'systemic risk'. Systemic risk emerged in the 1960s out of a jurisdictional struggle over the Fed between two expert groups, 'monetary substantivists' and 'monetary formalists'. The latter's triumph transformed the Fed into a macroeconomic institution, responsible for managing growth. It also led to the institutionalization of 'systemic risk'—a conception of the financial system as a vital and yet vulnerable economic system and of the Fed's responsibility for protecting it. In this process, policymakers grew to fear bank failures as they began to see financial disasters through the lens of systemic risk. [ABSTRACT FROM AUTHOR]

This paper examines the impact of the Federal Reserve's founding on seasonal pressures and contagion risk in the interbank system. Deposit flows among classes of banks were highly seasonal before 1914; amplitude and timing varied regionally. Panics interrupted normal flows as banks throughout the country sought funds from the central money markets simultaneously. Seasonal pressures and contagion risk in the system were lower by the 1920s, when the Fed provided seasonal liquidity and reserves. Panics returned in the 1930s, due in part to shocks from nonmember banks and because the Fed's decentralized structure hampered a vigorous response to national crises. [ABSTRACT FROM AUTHOR]

This paper analyzes banks' capital and risk-based capital (RBC) ratios as predictors of risk. Using quarterly data on U.S. bank holding companies (BHCs) from 1997 through 2010, we regress the capital and RBC ratios against six balance-sheet and market-based indicators of risk. Although the capital and RBC ratios are statistically significant predictors of BHCs' levels of risk, we find the capital ratio is a statistically significantly better predictor of risk than the RBC ratio. This difference is strongest since the recent financial crisis beginning in 2007. [ABSTRACT FROM AUTHOR]

This paper analyses the interest rate-setting behaviour of the ECB and the former leading monetary authority in the Eurozone, the German Bundesbank, using Taylor rules in different GMM-estimation setups. The main findings are as follows: the Bundesbank was clearly stability oriented with regard to inflation and included output stabilization, interest rate smoothing and inflation forecasts in its decision-making process during the period under investigation, that is 1979M01-1998M12. Furthermore, evidence of the inclusion of the quantity of money in the decisions has been found at least for the 1980s. The estimation results for the ECB from 1999M01 onwards reveal a monetary policy that is less stability oriented than that of the Bundesbank in that it clearly violates the Taylor principle. According to this, the ECB cannot be seen as the successor of the Bundesbank as regards the way it has conducted monetary policy. [ABSTRACT FROM AUTHOR]

The purpose of this comment (reply) is to point out that Kopecky's argument is based upon a very restrictive interpretation of what it means to impose FRS reserve requirements on nonmember banks and to defend the validity of my test method. Section I presents the most important elements of Kopecky's model (slightly modified by me)—the model which he employs in arguing against my test method. Section II points out the critical assumption upon which Kopecky's argument rests and explains why my test method is valid. Section III contains some final remarks. [ABSTRACT FROM AUTHOR]

There are several different facets to the argument for the extension of FRS reserve requirements to nonmember banks, including issues of regulatory equity between member and nonmember banks, ability of the commercial banking system to withstand financial shocks, etc. However, the heart of the argument is that the Federal Reserve authorities need to be able to set reserve requirements on nonmember bank deposits in order to better control the money stock. The purpose of this paper is to present some evidence which is germane to the question of whether or not FRS reserve requirements on nonmember bank deposits are needed for greater precision in money stock control. Specifically, evidence is presented on the impact of nonmember banks upon the precision of Federal Reserve control over the money stock during the 1960's and early 1970's. Section I contains a discussion of the nonmember bank data problem (a problem which severely limited the scope of this study and which makes its findings less trustworthy than they might otherwise have been) and Section II presents the logic of the empirical inquiry. Section III contains the findings of the study, none of which supports the contention that the absence of FRS reserve requirements on the deposits of nonmember banks has been a source of instability for Federal Reserve control of the money stock. [ABSTRACT FROM AUTHOR]

The article reports that the Federal Reserve has resorted to statutory authorities that had lain unused for more than seven decades till 2008 when it took steps to improve a financial system on the brink of collapse. The Fed had reportedly been granted these powers in 1932 through passage of the Emergency Relief and Construction Act. It adds that the original Federal Reserve Act of December 23, 1913, incorporated strict limits on the scope of discretionary central bank credit policy.

This document is a foreword from the incoming president of the American Economic Association (AEA) regarding the association's annual meeting in 2024. The program for the meeting consisted of sessions, papers, and panels submitted by AEA members, with a focus on research relevant to economic inequalities, particularly those affecting children and families. The program included a wide range of topics such as the social safety net, racial and gender disparities, gun violence, contraception, education, and childcare. The document also mentions various awards and honors presented at the meeting, as well as webcasts of panel sessions and lectures available on the AEA website. [Extracted from the article]

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]

This paper assesses the relative effectiveness of central bank independence vs. policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rules-based monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability and output stability. Both de jure and de facto central bank independence at the Federal Reserve are considered. The main finding is that changes in macroeconomic performance during the past half century were closely associated with changes in the adherence to rules-based monetary policy and in the degree of de facto monetary independence at the Federal Reserve. But changes in economic performance were not associated with changes in de jure central bank independence. Formal central bank independence alone has not generated good monetary policy outcomes. A rules-based framework is essential. [ABSTRACT FROM AUTHOR]

The financial crisis of 2008 was significantly influenced by housing, mortgage markets and mortgage-backed securities (MBS). The Federal Reserve (Fed) conducts temporary open market operations on a daily basis and frequently uses repos on MBS. With this daily interaction with MBS, we examine whether any signal about the impending financial crisis could have been seen in the Fed's temporary open market operations. We identify four anomalous events in MBS temporary open market operations and examine those events for signals of the financial crisis. We find nothing in the four events that would have provided signals of the financial crisis. Instead, the common feature of the four events is an unusually large supply of MBS made available to the Fed for those day's temporary open market operations. [ABSTRACT FROM AUTHOR]

This paper examines and compares the communication strategies of the Federal Reserve and the European Central Bank, and their effectiveness. First, we find that the surprise components of both monetary policy actions and statements have important but differing effects on asset prices, with unexpected communication having a much greater impact on longer-term interest rates. Second, both the ECB and the Fed have proven to be equally successful in moving their domestic asset prices using either monetary policy or news shocks. However, the response of the American yield curve to the surprise component of Fed's statements is larger than the reaction of the European term structure to ECB's announcements. This result is intimately related to the amplitude of the policy rate cycle that is much larger in the US than in the euro area combined with the bounded support of the news shock. Third, we analyze the cross-effects and show that the Fed has been more able to move the European interest rates of all maturities than the ECB to move American rates. This finding is tied to the predominance of dollar fixed income assets rather than to an attempt of the ECB to mimic the Fed. [ABSTRACT FROM AUTHOR]

This paper describes the way in which the European Central Bank (ECB), the Federal Reserve and the Bank of England conducted monetary policy since the beginning of the financial crisis in August 2007. We argue that both quantitative easing -- and the other non-standard measures introduced by central banks that changed the composition of the asset side of their balance sheets (so-called ‘qualitative easing’) -- acted mainly through their effects on interest rates and, in particular, on money market spreads, rather than solely through ‘quantity effects’ in terms of the money supply. We perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy. --- Michele Lenza, Huw Pill and Lucrezia Reichlin [ABSTRACT FROM AUTHOR]

The article reexamines the role of the Federal Reserve in the retail payments in light of the new evolving U.S. payments system. It likewise explores the conceptual issues inherent in central bank involvement in retail payments as well as analyzes perspectives from other countries that may prove useful. It Furthermore, it evaluates the Federal Reserve involvement in retail payments as well as offer a framework on key issues. Moreover, it reviews the changing U.S. payments landscape such as the shifting from paper to electronic payments.

Foreign exchange markets display regularly severe bubbles. This paper explores whether or not the so-called target zone interventions are an effective tool for central banks to stabilize the exchange rate. We define such intervention operations as buying/selling an undervalued/overvalued currency when the distance between the exchange rate and its fundamental value exceeds a critical threshold value. On the basis of a nonlinear empirical exchange rate model with chartists and fundamentalists, we find that not only target zone interventions have the power to reduce misalignments but also to earn profits. [ABSTRACT FROM AUTHOR]

This article focuses on the Federal Reserve Banks as fiscal agents and depositories of the United States in a changing financial environment. The Federal Reserve Act assigns to the Federal Reserve Banks the task of serving as fiscal agents and depositories of the United States when required to do so by the Secretary of the U.S. Department of the Treasury. The Treasury and the Reserve Banks have implemented new web-based technology to improve the federal government's provision of services in the areas of securities, payments, and collections as well as government-wide financial reporting, much the same as financial services firms have used Web-based technology to improve the ways that they do business and communicate with their customers. INSETS: Use of the Automated Clearinghouse System (ACH);The Fedwire Securities Service;Relationship between the Treasury's Balance with the Reserve Bank;Additional Information on Fiscal Agent Services

This article critically examines banking theory. It is evident that the commercial loan theory of banking is incompatible with the view that the chief function of the banking system is to supply purchasing power, and that a central bank should control this supply in the interests not only of commercial borrowers, but also of the community in general. The main instruments possessed by central banks are designed for this latter purpose, and not to control the composition of bank assets. The U.S. Federal Reserve Board, accepting the commercial loan theory of banking embodied in the Federal Reserve Act, appears to believe that its main concern is to ensure that "the resources of the Federal reserve system are ample for meeting the growth of the country's commercial need for credit."

Housing affordability is an important component of economic development. It affects several levers for regional growth, including business formation, through wealth building and influencing entrepreneurship. Housing affordability also affects location decisions—of both labor and employers. These proceedings document findings from research presented at a conference titled "The Impact of Housing Affordability on Economic Development and Regional Labor Markets" sponsored by the Federal Reserve Bank of Atlanta and the W.E. Upjohn Institute for Employment Research. The analysis presented at the conference suggests that higher-cost housing can trigger productive workers to leave markets and may limit the ability of workers, especially African American workers, to enter the labor market. At the same time, large economic development projects can displace workers. Research suggests that land use regulation is a driver of housing affordability; typically, higher levels of regulation lead to higher costs. Also, the efforts of economic developers affect local policies, like regulation and zoning, to attract firms. Discussion at the conference suggested housing issues be more integral to economic development policy and that new and expanded measures of housing affordability be used to track affordability. [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.

Tindall and Spencer [1997]presented a dynamic stochastic theory of borrowed reserves that explained the observed nonlinear relationship between borrowing and the spread between the federal funds rate and the discount rate. It showed that borrowed reserves are a function of deposit variation. This paper extends that research, providing a general dynamic model of all key bank reserve aggregates. Nearly all reserve aggregates, which can be used as operating targets by the Federal Reserve, are subject to the influence of deposit variation and are nonlinearly related to the spread between the federal funds rate and the discount rate, complicating their use as targets. Additionally, it is found that the Federal Reserve's proposal to pay interest on bank reserves could generate substantial distortions in reserve aggregate behavior where interest is paid on excess reserves as well as required reserves, effectively resulting in potentially large discount-window policing problems. (JEL E58) [ABSTRACT FROM AUTHOR]

In the United States, private citizens play little direct role in policymaking. The directors of the boards of the regional Federal Reserve banks are an apparent exception to this rule. These directors recommend changes in the discount rate, although the Board of Governors decides whether to act on the recommendations. These directors would have greater influence if they affected the FOMC votes of their district bank presidents. This paper shows that the FOMC votes of the regional bank presidents are strongly correlated with the discount rate recommendation of their bank's board. Several alternative explanations for the correlation are then examined. [ABSTRACT FROM AUTHOR]