Why are the prices of so many commodities rising in an economy that seems to remain quite weak?
Category Archives: Federal Reserve
Guest Contribution: The Liquidity Trap Does Not Make Monetary Policy Ineffective
By Joseph E. Gagnon
Today, we’re fortunate to have Joe Gagnon, senior fellow at the Peterson Institute for International Economics, as a guest contributor.
Improving financial regulation and supervision
There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder’s message was It’s Broke, Let’s Fix It: Rethinking Financial Regulation. Here I summarize four key reforms these speakers addressed.
Evaluating the new tools of monetary policy
Last week I participated in a conference hosted by the Federal Reserve Bank of Boston, at which I discussed the new lending programs and asset acquisitions pursued by the Federal Reserve over the last two years. Previously I shared with Econbrowser readers empirical evidence on the effects these targeted liquidity operations seem to have had. Below I reproduce my remarks from the conference on the underlying motivation for using such measures, in which I suggested that the critical question is what was the underlying cause of the financial stress to which the Fed was responding. I distinguished between two possible interpretations of how the financial crisis arose.
Targeted liquidity operations
During the last two years, the Federal Reserve responded to problems in the financial markets through what I have described as monetary policy using the asset side of the Fed’s balance sheet, replacing its traditional holdings of Treasury securities with a variety of new lending programs and alternative assets. I’ve been taking a look at what effect these operations seem to have had on the problems they were designed to address.
Guest Contribution: Lessons from the 1970s for Fed Policy Today
By David Papell
Today, we’re fortunate to have David Papell, Professor of Economics at University of Houston, as a guest contributor.
The Federal Open Market Committee voted last Wednesday to keep the federal funds target rate at a record low of between zero and 0.25 percent. If it was not constrained by the zero lower bound, should the federal funds rate be negative? If the answer is yes, this suggests that the rate should remain at its record low for a considerable period and provides a justification for continued increases in the Fed’s balance sheet. If the answer is no, then the Fed may need to raise its interest rate target sooner rather than later.
Federal Reserve reverse repurchases
Here I offer some thoughts on Bloomberg’s account that the Fed has made inquiries with its dealers about the feasibility of a significant increase in the Fed’s reverse repo operations.
Links for 2009-09-25
Tim Duy worries that some FOMC members are overestimating the inflation risk.
Arnold Kling proposes a mackerel theory of value.
The discussion at Cato of monetary policy continues.
Regulating compensation in the banking sector
I see a good case for this, but also some big things to worry about.
Scott Sumner on the Fed’s mistakes
The Cato Institute is hosting a discussion this month of the extent to which monetary policy may have contributed to our current economic problems. In the lead essay that appeared on Monday, Professor Scott Sumner of Bentley University suggested that the Fed erred in allowing nominal GDP to grow as slowly as it did.
My response
appeared this morning. I agree that faster growth of nominal GDP would have been a good thing, but argue that, particularly if you start the clock in the fall of 2008, the Fed lacked the tools to prevent a decline in nominal GDP.