Saturday , January 19 2019
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The author David Beckworth
David Beckworth
I am an associate professor of economics at Western Kentucky University, an adjunct scholar at the Cato Institute, and a former economist at the U.S. Department of Treasury.

Macro and Other Market Musings

This macroeconomics focused blog by David Beckworth, an associate Professor of Economics at Western Kentucky University, has recently launched an awesome podcast that features well-known economists, many of whom are featured on this list. David’s blog highlights is a great place to start to learn about specific economic events.

Oh, the Horror of a Corridor!

The December 2018 FOMC minutes are out and reveal members continue to discuss the potential long-run frameworks for monetary policy implementation. Their discussion as to whether they should keep their current floor operating system or move to a corridor operating system can be illustrated using the figure below: The FOMC likes the floor system since it separates the size of the Fed's balance sheet from the setting of its target interest rate. This added flexibility is possible...

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How Close is the Fed to a Corridor System?

I recently participated in an AEI event that showcased George Selgin's new book on the Fed's floor  system. My role at the event was to comment, along with Bill Nelson, on George's book.  Readers of this blog will know I share many of George's concerns about the floor system that are outlined in his book and I would like to see the Fed move to a symmetric corridor system. The FOMC spent a good portion of its November meeting discussing this issue. My comments at the AEI event, however,...

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A Risk Sharing View of Monetary Policy

I have a new working paper titled "Better Risk Sharing Through Monetary Policy? The Financial Stability Case for a Nominal GDP Target". I presented this paper at the recent Cato Monetary Policy Conference.Here is the abstract: A series of papers have shown that a monetary regime targeting nominal GDP (NGDP) can reproduce the distribution of risk that would exist if there were widespread use of state contingentdebt securities (Koenig, 2013; Sheedy, 2014; Azariadis et al., 2016, Bullard and...

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A New Paper on the Fed’s Floor System

As readers of this blog know, I have an interest in the Fed's operating system. This interest has culminated in a new paper where I look at the consequences of the Fed moving from a corridor system to a floor system in 2008. In particular, the paper looks at what this change has meant for bank portfolios and, as a result, financial intermediation provided by banks. The paper concludes with some policy recommendations. I would also note that George Selgin has just released a new book on this...

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Janet Yellen on NGDPLT

Andrew Metrick of Yale University interviewed former Fed Chair Janet Yellen today. It was an interesting discussion and one where they talked about, among other things, what changes the Fed could bring about in light of the recently announced strategies, tools, and communication review to be held in 2019.  Janet Yellen said her idea for reform "has much in common with NGDP targeting". Her response can be seen in the video below: [embedded content] Glad to see her endorse a NGDPLT-like...

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“Et tu, John Williams?”

Tim Duy reports that r-star, which rose to prominence over the past few years, is experiencing a Caesar-like betrayal at the Fed: The Federal Reserve’s “r-star” has gone full supernova. New York Federal Reserve President John Williams, its key proponent, made clear in a speech late Friday that the neutral interest rate is no longer a guiding star for monetary policy. This means a federal funds rate in the range of what is considered neutral has no special significance as far as policy is...

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FOMC Preview: “We Have the Nerve to Invert the Curve”

The quote in the title should be the motto for the 2018-2019 FOMC. For the FOMC is set to raise its interest rate target next week and expected to raise it several times more in 2019 despite a flattening treasury yield curve. As seen in the above chart, the outright inversion of the treasury yield typically leads to a recession.  Despite this robust pattern, a growing number of Fed officials have become emboldened in their dismissal of it "since this time is different."  As Caroline...

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More Non-Star Metrics for Monetary Policy

In an earlier post and Bridge article, I discussed some ways to use nominal GDP (NGDP) as a cross-check on the FOMC "navigating  by stars" of r*, u*, and y*. The  motivation for these pieces was Fed Chair Jay Powell's concerns about the challenge of using these star variables when they seem increasingly in flux. Here, again, is a key excerpt from his talk: Navigating by the stars can sound straightforward. Guiding policy by the stars in practice, however, has been quite challenging of late...

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The Fed’s Floor System: Sayonara?

Are the days of the Fed's floor system numbered? Last month I claimed that they could be if President Trump's fiscal policy continues to spawn rapid increases in the issuance of treasury bills. His administration is relying heavily on treasury bills to finance its deficits as seen below: This increased issuance of treasury bills matters because it implies, all else equal, a rise in treasury bill yields. Below is a figure showing the  DTCC overnight treasury-repo rate relative to...

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Navigating by the Stars and Steadying the Ship Speed

I have a new article over at The Bridge where I piggyback off of Jay Powell's recent speech about the challenges of the Fed 'navigating' by the stars of  r*, u*, and y*. His concern is how to use them when they seem to be moving a lot: Navigating by the stars can sound straightforward. Guiding policy by the stars in practice, however, has been quite challenging of late because our best assessments of the location of the stars have been changing significantly… the FOMC has been navigating...

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