Not that I’m complaining. But seriously, it’s far past the “day one” of the new Administration when Donald Trump promised China would be declared a currency manipulator.
Category Archives: financial markets
Guest Contribution: “10 Lessons for China 10 years after the subprime financial crisis “
Today we are fortunate to present a guest contribution written by Alessandro Rebucci, Associate Professor, and Jiatao Liu, at the Carey School of Business at Johns Hopkins University.
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Guest Contribution: “Financial Markets Underestimate Risk”
Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate on September 25th.
Another event to study
One of the ways economists have tried to estimate the effects of the Fed’s program of large-scale asset purchases (LSAP) is using event studies of how the market responds in the thirty minutes following Fed statements of changes in the program. Yesterday’s announcement from the Federal Reserve that it is starting a gradual process of reducing its balance sheet gives us one new data point for such efforts.
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Market Expectations Regarding Successful Raising of the Debt Ceiling
The market has apparently taken a dim view of the Administration’s ability to manage the debt ceiling issue. From Deutsche Bank (not online):
Truth be told, I am unsurprised.
Asset Prices and Economic Policy Uncertainty, Post-Election
The economy plugs along much as it did before the election, while the stock market hits new highs. What about other variables?
A New Puzzle à la Fama
In a forthcoming paper (“The New Fama Puzzle”), coauthored with Matthieu Bussière (Banque de France), Laurent Ferrara (Banque de France), Jonas Heipertz (Paris School of Economics), we re-examine uncovered interest parity – the proposition that anticipated exchange rate changes should offset interest rate differentials. This is one of the most central concepts in international finance. At the same time, empirical validation of this concept has proven elusive. In fact, the failure of the joint hypothesis of uncovered interest rate parity (UIP) and rational expectations – sometimes termed the unbiasedness hypothesis – is one of the most robust empirical regularities in the literature. The most commonplace explanations – such as the existence of an exchange risk premium, which drives a wedge between forward rates and expected future spot rates – have little empirical verification.
Guest Contribution: “‘Lending money to people across the water’: The British Joint Stock Banking Acts of 1826 and 1833, and the Panic of 1837”
Today we are pleased to present a guest contribution written by Geoffrey Williams, Assistant Professor at Transylvania University.
Guest Contribution: “Time-varying Models for Monetary Policy and Financial Stability”
Today, we are pleased to present a guest contribution written by Laurent Ferrara (Adjunct Professor of Economics, University Paris Nanterre, France). The views expressed here are those solely of the author.
Fed balance-sheet reduction not scaring anyone
Today the Federal Reserve announced that it is increasing its target for the fed funds rate to a new range of 1 to 1.25%, a development that surprised no one. But something that was not heralded in advance was the announcement that the Fed intends to “begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.” The Fed spelled out in detail exactly what that will entail. Sometime later this year, the Fed will begin limiting the amount of maturing Treasury securities and mortgage-backed securities that it reinvests, initially bringing its balance sheet down by $10 billion each month as its holdings are redeemed. Those amounts will gradually increase each month until after a year balance-sheet reduction reaches a pace of $50 billion per month. That compares with a net increase of $100B/month on the way up during QE1. Given current Fed security holdings of $4.2 trillion, this would reduce the Fed’s security holdings by about 14% per year once it gets into full swing.
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