scholarly journals Market-Based Monetary Policy Uncertainty

2021 ◽  
Author(s):  
Michael D Bauer ◽  
Aeimit K Lakdawala ◽  
Philippe Mueller
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Financial Market ◽  
Policy Uncertainty ◽  
Uncertainty Measure ◽  
Market Reactions ◽  
Model Free ◽  
Forward Guidance ◽  
Future Policy ◽  
Transmission Of Monetary Policy

Abstract Uncertainty about future policy rates plays a crucial role for the transmission of monetary policy to financial markets. We demonstrate this using event studies of FOMC announcements and a new model-free uncertainty measure based on derivatives. Over the ‘FOMC uncertainty cycle’ announcements systematically resolve uncertainty, which then gradually ramps up again. Changes in monetary policy uncertainty around FOMC announcements—often due to forward guidance—have pronounced effects on asset prices that are distinct from the effects of conventional policy surprises. The level of uncertainty determines the magnitude of financial market reactions to surprises about the path of policy rates.

scholarly journals Monetary Policy Surprises, Credit Costs, and Economic Activity

2015 ◽  
Vol 7 (1) ◽  
pp. 44-76 ◽  
Author(s):  
Mark Gertler ◽  
Peter Karadi
Keyword(s):  
Monetary Policy ◽  
High Frequency ◽  
Monetary Policy Shocks ◽  
Var Analysis ◽  
Financial Variables ◽  
Forward Guidance ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Term Premia ◽  
Transmission Of Monetary Policy

We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting “modest” movements in short rates lead to “large” movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission. (JEL E31, E32, E43, E44, E52, G01)

Financial market reactions to announcements of monetary policy decisions

2013 ◽  
Vol 40 (1) ◽  
pp. 54-70 ◽  
Author(s):  
Helder Ferreira de Mendonça ◽  
Ivando Faria
Keyword(s):  
Monetary Policy ◽  
Financial Market ◽  
Policy Decisions ◽  
Market Reactions

scholarly journals The New Tools of Monetary Policy

2020 ◽  
Vol 110 (4) ◽  
pp. 943-983 ◽  
Author(s):  
Ben S. Bernanke
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Financial Markets ◽  
Interest Rates ◽  
The United States ◽  
Moderate Increase ◽  
Advanced Economy ◽  
Forward Guidance ◽  
Financial Conditions ◽  
Economic Stabilization

To overcome the limits on traditional monetary policy imposed by the effective lower bound on short-term interest rates, in recent years the Federal Reserve and other advanced-economy central banks have deployed new policy tools. This lecture reviews what we know about the new monetary tools, focusing on quantitative easing (QE) and forward guidance, the principal new tools used by the Fed. I argue that the new tools have proven effective at easing financial conditions when policy rates are constrained by the lower bound, even when financial markets are functioning normally, and that they can be made even more effective in the future. Accordingly, the new tools should become part of the standard central bank toolkit. Simulations of the Fed’s FRB/US model suggest that, if the nominal neutral interest rate is in the range of 2–3 percent, consistent with most estimates for the United States, then a combination of QE and forward guidance can provide the equivalent of roughly 3 percentage points of policy space, largely offsetting the effects of the lower bound. If the neutral rate is much lower, however, then overcoming the effects of the lower bound may require additional measures, such as a moderate increase in the inflation target or greater reliance on fiscal policy for economic stabilization. (JEL D78, E31, E43, E52, E58, E62)

scholarly journals The Dynamic Effects of Forward Guidance Shocks

2020 ◽  
Vol 102 (5) ◽  
pp. 946-965 ◽  
Author(s):  
Brent Bundick ◽  
A. Lee Smith
Keyword(s):  
Monetary Policy ◽  
Theoretical Model ◽  
Economic Activity ◽  
Futures Contracts ◽  
Dynamic Effects ◽  
Forward Guidance ◽  
Policy Shocks ◽  
Macroeconomic Effects ◽  
Future Policy ◽  
Macroeconomic Implications

We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. Empirically, we identify forward guidance shocks using unexpected changes in futures contracts around monetary policy announcements. We then embed these policy shocks in a vector autoregression to trace out their macroeconomic implications. Forward guidance shocks that lower expected future policy rates lead to moderate increases in economic activity and inflation. After examining forward guidance shocks in the data, we show that a standard model of nominal price rigidity can reproduce our empirical findings. To estimate our theoretical model, we generate a model-implied futures curve that closely links our model with the data. Our results suggest no disconnect between the empirical effects of forward guidance shocks around policy announcements and the predictions from a standard theoretical model.

scholarly journals Perspectives From the Past for the Federal Reserve’s Monetary Policy and Communication

2018 ◽  
Vol 10 (1) ◽  
pp. 31
Author(s):  
Arto Kovanen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Crisis ◽  
Federal Reserve ◽  
Policy Decisions ◽  
Forward Guidance ◽  
Policy Communication ◽  
Communication Practices ◽  
Future Policy ◽  
Future Direction

In this paper we analyze the Federal Reserve’s policy and communication patterns during earlier tightening cycles to gain perspectives into the Federal Reserve’s post-financial crisis monetary policy decisions and communication practices. While each interest rate cycle is unique, as is evident in the post-financial crisis normalization episode, there are regularities that could help inform us about future policy directions. In the post-financial period, the Federal Reserve has placed a great deal of emphasis on policy communication, in particular on its forward guidance, to minimize ambiguity about the future direction of monetary policy. We examine forward guidance during the earlier interest rate cycles and identify some common elements in the Federal Reserve’s communication practices, which would be useful in interpreting the Federal Reserve’s policy actions. This leads us to conclude that it would not be uncharacteristic for the Federal Reserve to suspend its campaign of raising interest rate at this stage of the normalization process, even if inflation risk remains. This underscored the importance of judgment in policy decisions, in part due to uncertainty about the neutral rate of interest, which is a benchmark that the Federal Reserve frequently refers to. In addition, historical trends in economic variables reveal patterns that could assist in evaluating the Federal Reserve’s current and future policy decisions.

Perspectives on inflation Targeting Regime in Russia

2014 ◽  
pp. 107-121 ◽  
Author(s):  
S. Andryushin
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Short Term ◽  
Indirect Control ◽  
Financial Account ◽  
Domestic Prices ◽  
Macroeconomic Indicators ◽  
Private And Public

The paper analyzes monetary policy of the Bank of Russia from 2008 to 2014. It presents the dynamics of macroeconomic indicators testifying to inability of the Bank of Russia to transit to inflation targeting regime. It is shown that the presence of short-term interest rates in the top borders of the percentage corridor does not allow to consider the key rate as a basic tool of monetary policy. The article justifies that stability of domestic prices is impossible with-out exchange rate stability. It is proved that to decrease excessive volatility on national consumer and financial markets it is reasonable to apply a policy of managing financial account, actively using for this purpose direct and indirect control tools for the cross-border flows of the private and public capital.

Sign in / Sign up

Export Citation Format

Share Document