Weakening relationship between the federal funds rate and long-term interest rates: decreasing effectiveness of monetary policy in the US

2013 ◽  
pp. 89-129 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Us ◽  
Effectiveness Of Monetary Policy

scholarly journals The Spillover Effects of the US Unconventional Monetary Policy: New Evidence from Asian Developing Countries

2020 ◽  
Vol 13 (8) ◽  
pp. 165
Author(s):  
Thi Tran ◽  
Hoang Pham
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Interest Rates ◽  
Spillover Effects ◽  
Unconventional Monetary Policy ◽  
Equity Prices ◽  
Developing Markets ◽  
The Us ◽  
Asian Developing Countries

This paper aims to trace the monthly responses of equity prices, long-term interest rates, and exchange rates in Asian developing markets to the US unconventional monetary policy (UMP). The main research question is to explore whether UMP shocks exist in those markets. We also consider the differences in the mean responses of those asset prices between traditional and non-traditional monetary policy phases. To address such concerns, we employ a panel vector autoregression with exogenous variables (Panel VARX) model and estimate the model by the least-squares dummy variable (LSDV) estimator in three different periods spanning from 2004M2 to 2018M4. The first finding is that UMP shocks from the US are associated with a surge in equity prices, a decline in long-term interest rates, and an appreciation of currencies in Asian developing markets. In contrast, the conventional monetary policy shocks from the US seem to exert adverse effects on these recipient countries. These empirical results suggest that the policymakers in Asian developing countries should cautiously take into account the spillover effects from the US unconventional monetary policy once it is executed.

US Fed will struggle to raise rates much in 2016

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Investor Sentiment ◽  
Commodity Prices ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Content Type ◽  
The Us ◽  
The Face ◽  
Lift Off ◽  
China’S Economy

Subject US monetary policy outlook for 2016 and its global impact. Significance There is a large discrepancy between the US Federal Reserve (Fed)'s estimates for interest rates at end-2016 and the expectations of bond investors. The latter are anticipating less tightening than the 100-basis-point (bp) rise in the Federal Funds rate the Fed has pencilled in for this year. Despite a successful rates 'lift-off' on December 16, the Fed faces many challenges in raising rates in the face of mounting stress in credit markets, disinflationary pressures from the plunge in commodity prices and a contraction manufacturing. Impacts While the Fed will tighten policy, other central banks, including the ECB, will provide further stimulus, accentuating policy divergence. Investors will price in a more hawkish Fed if US inflation accelerates faster than expected, potentially leading to a sell-off. Concerns about China's economy and the commodity prices slump will also shape investor sentiment.

Canadian monetary policy and the US federal funds rate

2008 ◽  
Vol 15 (11) ◽  
pp. 899-904 ◽  
Author(s):  
H. Sonmez Atesoglu ◽  
John Smithin
Keyword(s):  
Monetary Policy ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Us

scholarly journals Identification at the Zero Lower Bound

Econometrica ◽  
2021 ◽  
Vol 89 (6) ◽  
pp. 2855-2885 ◽  
Author(s):  
Sophocles Mavroeidis
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Causal Effects ◽  
Zero Lower Bound ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Vector Autoregressive ◽  
Structural Vector Autoregressive Model ◽  
Structural Vector

I show that the zero lower bound (ZLB) on interest rates can be used to identify the causal effects of monetary policy. Identification depends on the extent to which the ZLB limits the efficacy of monetary policy. I propose a simple way to test the efficacy of unconventional policies, modeled via a “shadow rate.” I apply this method to U.S. monetary policy using a three‐equation structural vector autoregressive model of inflation, unemployment, and the Federal Funds rate. I reject the null hypothesis that unconventional monetary policy has no effect at the ZLB, but find some evidence that it is not as effective as conventional monetary policy.

Asset Valuation

2019 ◽  
pp. 111-120
Author(s):  
Alan N. Rechtschaffen
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Yield Curve ◽  
Market Demand ◽  
Asset Valuation ◽  
Federal Funds ◽  
Yield Curves ◽  
Federal Funds Rate ◽  
The Great Recession

This chapter begins with a discussion of the use of interest rates in asset valuation. During the Great Recession, the Federal Reserve has navigated U.S. interest rates lower by first reducing the target for the federal funds rate to zero, and then engaging in a process of quantitative easing by purchasing longer-term securities. The effect of the Federal Reserve's actions has been to lower interest rates that affect valuation models across all assets and investments. The chapter then discusses interest rate yield curve, covering the types of yield curves, why the yield curve may be flat or inverted, the increase in market demand for long-term securities, and long-term yield affected by Federal Reserve monetary policy.

scholarly journals Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?

2015 ◽  
Vol 29 (4) ◽  
pp. 177-198 ◽  
Author(s):  
Jane E. Ihrig ◽  
Ellen E. Meade ◽  
Gretchen C. Weinbach
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Banking System ◽  
Open Market ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Standard Textbook

For many years prior to the global financial crisis, the Federal Open Market Committee set a target for the federal funds rate and achieved that target through small purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large-scale asset purchase programs, this approach to implementing monetary policy will no longer work. This paper provides a primer on the Fed's implementation of monetary policy. We use the standard textbook model to illustrate why the approach used by the Federal Reserve before the financial crisis to keep the federal funds rate near the Federal Open Market Committee's target will not work in current circumstances, and explain the approach that the Committee intends to use instead when it decides to begin raising short-term interest rates.

scholarly journals Bank Revolving Credit as a Channel of Monetary Policy Targeting Interest Rates

2021 ◽  
Vol 13 (2) ◽  
pp. 147-160
Author(s):  
MUJTABA ZIA ◽  
◽  
JENNIFER LOGAN ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Instrumental Variable ◽  
Credit Card ◽  
Credit Cards ◽  
The United States ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Consumer Loans ◽  
Revolving Credit

This paper investigates the implication of bank revolving credit in the form of credit card loans as a channel of monetary policy targeting the federal funds rate since 1980. Credit cards have become increasingly popular and a necessity for many transactions and purchases in the United States. The revolving credit nature of credit card loans makes them an instant tool for consumer loans that can facilitate consumption. Using instrumental variable and two-stage least squares (2SLS) methodology, we analyze the implication of credit card loans to modern monetary policy that targets interest rates.

scholarly journals The Dynamics of Bank Spreads and Financial Structure

2014 ◽  
Vol 04 (04) ◽  
pp. 1450014 ◽  
Author(s):  
Reint Gropp ◽  
Christoffer Kok ◽  
Jung-Duk Lichtenberger
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Banking Sector ◽  
Interest Rate Derivatives ◽  
Developed Markets ◽  
Speed Up ◽  
Pass Through ◽  
Bank Spreads ◽  
Effectiveness Of Monetary Policy

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

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