The August 2011 meeting of the Federal Reserve's Federal Open Market Committee produced new language describing the expected path of interest rates over a two-year horizon. That language spurred a variety of interpretations, as some saw it as describing what was already expected and others interpreted it as a significant policy shift. This column examines the expected path of future interest rates and says that the new language was wholly consistent with past Fed practice.
Olivier Coibion, Yuriy Gorodnichenko, Friday, October 21, 2011
Yuriy Gorodnichenko, Olivier Coibion, Friday, January 28, 2011
As the US economy recovers in fits and starts, attention is turning to exit strategies. How will the Fed unwind its quantitative easing? This column presents evidence of substantial levels of policy inertia in monetary policy. It says that we should not expect rapid policy changes in the near future – barring clear signs of economic distress.
Pierre-Olivier Weill, Guillaume Rocheteau, Ricardo Lagos, Wednesday, December 16, 2009
Following the last run on a British bank over 130 years ago, Walter Bagehot argued that central banks should act as a lender of last resort. While such policies have been followed by central banks in today’s crisis, this column updates the recommendation by suggesting central banks should also act as a “liquidity provider of last resort”.
Willem Buiter, Thursday, June 4, 2009
Some economists are arguing that central banks should set negative nominal interest rates. This column explains the basics by describing three ways of removing the zero lower bound on nominal interest rates: abolish currency, tax currency holding, or decouple the unit of account from the currency by introducing a new currency.
Charles Wyplosz, Sunday, July 20, 2008
Should taxpayers bail out the banking system? One of the world’s leading international macroeconomists contrasts the Larry Summers “don’t-scare-off-the-investors” pro-bailout view with the Willem Buiter “they-ran-into-a wall-with-eyes-wide-open” anti-bailout view. He concludes that either way, taxpayers are always the losers. The best policy makers can do is to be merciless with shareholders and gentle with bank customers.
Guido Tabellini, Monday, June 23, 2008
The ECB and the Fed are pursuing very different policies on inflation fighting and the use of monetary aggregates in guiding policy. One of Italy’s leading economists argues that either the ECB or the Fed is making a mistake.
Francesco Giavazzi, Monday, June 2, 2008
Editor's Note: Originally posted 2 June 2008.
There has been a persistent spread between the rate at which banks lend each other money and government-backed securities yields in recent months. This column describes hypotheses explaining the spread – including the possibility that banks aren’t lending in order to bankrupt acquisition targets.
Jeffrey Frankel, Thursday, May 29, 2008
Low inventory levels might seem to belie the theory that soaring commodity prices are attributable to low interest rates. In this column, Jeffrey Frankel defends his argument, pointing to production decisions and cross-country comparisons.
Michael J. Orlando, Saturday, May 24, 2008
The financial crisis has put the US Federal Reserve’s performance under the spotlight. As the United States reassesses its financial regulatory system, this column makes the case for central bank independence.
Richard Baldwin, Saturday, May 8, 2010
This column, first posted 17 May 2008, reviews Willem Buiter's analysis of why the ECB is so hesitant to buy debt. Central banks can go broke – and some in developing countries have done so recently. The ECB is now lending against dubious collateral. An ECB recapitalisation seems unthinkable at the moment, but that’s why it is a good time to think the unthinkable. Willem Buiter considers the question at length in CEPR Policy Insight No. 24 and argues that Eurozone fiscal authorities should, ASAP, agree on a formula for fiscal burden-sharing should an ECB recapitalisation ever be necessary.
Stephen Cecchetti, Thursday, April 10, 2008
The nature of the ongoing financial turmoil that began in August 2007 has rendered traditional monetary policy responses ineffective. This column summarises the US Federal Reserve’s response to the crisis.
Jon Faust, Thursday, January 31, 2008
The US Federal Reserve makes monetary policy based on necessarily imperfect economic forecasts. Recent research shows that the Fed is quite adept at assessing current economic conditions, but forecasting the future remains disappointingly difficult.
Michael Woodford, Thursday, January 17, 2008
Central banks have experimented with ‘forward guidance’ – sending signals about the future path of interest rate policy more than just one decision ahead – as a way of stabilizing medium-to-longer run expectations. Here is a discussion of the phenomenon and some ideas on how the Fed could improve its signalling.
Michael Woodford, Tuesday, January 8, 2008
The new strategy is not ‘stealth inflation targeting,’ but it matters for the Fed’s own deliberations. Here the world’s leading monetary theorist argues that forcing FOMC members to look years ahead will move policy towards a coherent strategy, away from a sequence of short-term decisions -- highly desirable since the anticipation of policy matters to its effectiveness.
Gilles Saint-Paul, Thursday, December 6, 2007
Many observers call for US interest rate cuts to avoid a recession, but this is likely to perpetuate the current imbalances in the US economy. The US probably needs a recession to get the required correction in house prices and consumer spending. The Fed should signal its intention to hang tough and start thinking about how big a fall in GDP it will tolerate before intervening.
Stephen Cecchetti, Monday, August 13, 2007
Here are the basic how's and why's of what the Fed has been doing to calm financial markets.