Monetary policy

Wei Cui, Vincent Sterk, 09 January 2019

The effects of quantitative easing are poorly understood, in part because standard models of monetary policy predict that it doesn't work. This column uses a model in which households can be unequal and hold assets with different degrees of liquidity to show that quantitative easing can provide a powerful stimulus to the macroeconomy, and that it avoided a large decline in output and inflation during 2009. Nevertheless, side-effects on inequality mean that social welfare tends to be lower under quantitative easing than under conventional policy.

Pierre Siklos, Samantha St. Amand, Joanna Wajda, 16 December 2018

There is an ongoing debate regarding how far central bankers, as unelected technocrats, should go outside of their remit when communicating in public fora. This column uses a machine-learning algorithm to assess the topics of speeches by officials at the US Federal Reserve and Bank of Canada over the last two decades. It concludes that the topics of central bankers’ speeches have not significantly widened in scope relative to their mandate documents.

Frank Decker, Charles Goodhart, 14 December 2018

Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. This column assesses the analysis of credit mechanics within the context of the current money supply debate, arguing that the theory qualified a one-sided, bank-centric view of money creation which is now often encountered in monetary theory. With the old standard textbook models of money creation now discredited, the authors advocate a more general approach to money supply theory involving credit mechanics. 

Refet Gürkaynak, Burçin Kısacıkoğlu, Jonathan Wright, 12 December 2018

News affects the yield curve, but OLS regressions based on observed news have been able to explain only 40% of the movement, at best. This column proposes a method for estimating unobserved news as well. The results suggest that news explains more or less all of the yield curve changes in event windows, and that more should be done to understand the economics behind this relationship. 

Martin Eichenbaum, Sérgio Rebelo, Arlene Wong, 02 December 2018

Mortgage rate systems vary in practice across countries, and understanding the impact of these differences is critical to the design of optimal monetary policy. This column focuses on the US, where most mortgages have a fixed interest rate and no prepayment penalties, and demonstrates that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. As refinancing costs decline, the effects of monetary policy become less state dependent.

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