A Surprising Look Back at the Fed’s QE Programs

The Fed’s QE3 program is scheduled to end later this year. This will bring to a close the Fed’s five year experiment with QE programs. They have been incredibly controversial, especially among those who believe these programs enabled the federal government to run large budget deficits. Those holding this view typically make one of two […]

Tinkering on the Margins: ECB Edition

Has the ECB finally ended its hard-money ways? You know the kind that raises interest rates twice during the crisis,allows aggregate demand in the periphery to stall, and fosters below-trend growth in money supply and money velocity. On Thursday, the ECB said it would be taking bold steps to stabilize the economy. It would start charging banks for the privilege […]

The Seesaw Approach to Monetary Policy

In my last post, I made the following comment: A NGDP target aims to stabilize total dollar spending. It is one target that has embedded in it both the supply of and the demand for money (i.e. total dollar spending = money supply x velocity of money). The beauty of a NGDP target is that the Fed does […]

Abenomics at the Brookings Institution

Joshua K. Hausman and Johannes F. Wieland presented a paper today on Abenomics at the Brookings Panel on Economic Activity. They focus specifically on the monetary policy portion of Abenomics: the Bank of Japan’s new commitment to 2% inflation, open-ended asset purchases, and a doubling of the monetary base. Abenomics is frequently covered on this blog and […]

What is the Fed’s Real Inflation Target?

In my last post I showed a figure that suggested the Fed has effectively been targeting a 1-2% core PCE inflation range target. If so, it would be consistent with the observations made by Ryan Avent and Matthew Yglesias that the Fed is using 2% as an upper bound on inflation. Here is Ryan Avent back in April, 2012: The Fed’s second failure is […]

The Fed’s Forward Guidance Is Not Truly State-Dependent

In my previous post I criticized the Fed’s forward guidance without explicitly getting into the difference between time dependent and state dependent forward guidance. Time dependent forward guidance is when a central bank attempts to shape the expected path of interest rates without conditioning on the state of the economy. Sate dependent forward guidance does condition on […]

Forward Guidance Is Hard; So Is Navigating a Ship By Focusing on the Expected Path of Its Rudder

Forward guidance took a beating this week. First, San Francisco Fed President John Williams said its use is often oversimplified, easily misinterpreted, and time-inconsistent. Next, an important Blooomberg editorial argued that forward guidance should be dropped because it lacks credibility and at best confuses investors. Finally, the Bank of Englanddecided to abandon forward guidance altogether once it realized its unemployment […]

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