Research Paper (pdf): The Evolution of US Monetary Policy: 2000 - 2007
(Revised August 2016) (co-authored with Michael T. Belongia) A vector autoregression with time-varying parameters is used to characterize changes in Federal Reserve policy that occurred from 2000 through 2007 and describe how they affected the performance of the U.S. economy. Declining coefficients in the model's estimated policy rule point to a shift in the Fed's emphasis away from stabilizing inflation over this period. More importantly, however, the Fed held the federal funds rate persistently below the values prescribed by this rule. Under this more discretionary policy, inflation overshot its target and the funds rate followed a path reminiscent of the "stop-go" pattern that characterized Fed behavior prior to 1979.
Research Paper (pdf): Interest on Reserves: History and Rationale, Complications and Risks
(Revised February 2018) Among the enduring legacies of the financial crisis of 2007-09, interest on reserves now plays a central role in the Federal Reserve's policymaking framework. Famous arguments justify paying interest on reserves on economic efficiency grounds. In practice, however, the Fed has used its power to pay interest on reserves to facilitate credit market interventions that extend well beyond those required by its traditional central banking functions: conducting monetary policy to stabilize the aggregate nominal price level and acting as a lender of last resort to illiquid but solvent depository institutions. Resulting complications and risks raise strong doubts about the wisdom of making interest on reserves a permanent part of the Fed's toolkit.
Research Paper (pdf): Money Multiplier Shocks
(Revised August 2017) (co-authored with Luca Benati) Shocks to the M1 multiplier--in particular, shocks to the reserves/deposits ratio--played a key role in driving U.S. macroeconomic fluctuations during the interwar period, but their role in the post-WWII era has been almost uniformly negligible. The only exception are shocks to the currency/deposits ratio, which played a sizable role for inflation and M1 velocity. By contrast, shocks to the multiplier of the non-M1 component of M2, which had been irrelevant in the interwar period, have played a significant role in driving the nominal side of the economy during the post-WWII period up to the collapse of Lehman Brothers, in particular during the Great Inflation episode. During either period, the multiplier of M2-M1 has been cointegrated with the short rate. The monetary base had exhibited a non-negligible amount of permanent variation during the interwar period, whereas it has been trend-stationary during the post-WWII era. In spite of the important role played by shocks to the multiplier of M2-M1 during the post-WWII period, we still detect a non-negligible role for a non-monetary permanent inflation shock, which has the natural interpretation of a disturbance originating from the progressive de-anchoring of inflation expectations which started in the mid-1960s, and their gradual re-anchoring following the beginning of the Volcker disinflation.
Older Working Papers and Federal Reserve Publications
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