Implications of the Dual Banking System in the US

This paper examines the differences in characteristics of federal and state chartered banks by using individual commercial bank’s data sets from 1984 to 2006. The findings indicate significant differences between these two groups of banks in terms of their asset and liability management strategies. In line with these differences, credit channel of monetary policy is found to work differently for state and federal banks. Federal banks are found to be more responsive to monetary policy changes.     

Is U.S. money causing China's output?

This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that the main monetary instrument in the U.S., the Federal Fund Rate, Granger causes China's output. A second monetary variable, U.S. money supply, does not seem to have a significant effect on China's output. The results are supported by variance decompositions, which indicate that Federal Fund Rate shocks have an effect on China's real output. The findings have important implications for policy makers in China that focus on maintaining a high and stable economic growth.     

后危机时代美国货币政策的走势——兼论资产价格与货币政策操作规则

次贷危机使人们认识到,美联储货币政策操作失误难辞其咎。在全球化日益加深和美元为核心的国际货币体系下,美国不断下调利率的扩张性货币政策效应没有像过去那样迅速反映在商品价格上,而是主要表现为资产价格的攀升。由于美联储货币政策操作遵循了"泰勒规则"——把CPI当作最主要的监控对象,致使美联储错过了适时调整货币政策最佳的时机,导致美国信用扩张过度、资产泡沫,特别是房产泡沫不断升级。资产价格的上升最终会通过"财富效应"、"托宾q效应"、"金融加速器效应"等逐渐传导到商品价格上,随着石油等大宗商品价格的持续攀升,美联储开始急速提高利率,最终引发了次贷危机的爆发。后危机时代,美国的资产价格开始了迅速的回升,美联储应该吸取货币政策调整滞后的教训,适时地退出刺激,避免资产价格迅速上升和通货膨胀对经济复苏带来的不利影响。     

金融货币政策对经济影响分析--以美国金融危机为例

在金融危机中,美国财政部和美联储出台了一系列危机救助的货币政策。本文主要依据传统货币政策传导理论,对危机救助中货币政策工具的选择和采取何种路径对金融市场影响进行分析,以确定这些货币政策工具的有效性。     

Designing Fiscal Institutions in a Monetary Union

This article explores the policy and wealth consequences of alternative institutional arrangements through which fiscal policy interacts with monetary policy in a monetary union such as the EMU. The central issue of the article is the design of the appropriate monetary and fiscal institutions through a comparison of alternative arrangements to distribute power over monetary and fiscal authorities between the central authority of the union and the individual members of the union and evaluating their performance. The main results of this article reveal that delegation of the fiscal policy to a council of country representatives and the monetary policy to a council of governors is the appropriate institutional design to reduce inflation bias and better stabilize regional, idiosyncratic supply and demand shocks in a monetary union.     

The Predictability of FOMC Decisions: Evidence from the Volcker and Greenspan Chairmanships

This paper examines whether there is a systematic relationship between FOMC decisions and publicly available data that would potentially allow the public to anticipate FOMC policy changes. We characterize each FOMC decision as a move to tighten, ease, or leave policy unchanged and use ordered probit to estimate models of the probabilities of each choice. We find a statistically significant relationship between FOMC decisions and measures of inflation and real activity, but this relationship does not accurately predict the directions of FOMC decisions. While short-term interest rate changes prior to FOMC meetings have predictive power, suggesting that the financial market can anticipate FOMC decisions somewhat, other financial variables such as stock price movements appear unrelated to FOMC policy changes. Overall, FOMC decisions are not highly predictable using publicly available data, and adding the private information contained in the FOMC's Greenbook does not significantly increase the predictive accuracy.     

Interest Rates, Leverage, and Money

The current mainstream approach to monetary policy is based on the New Keynesian model and is expressed in terms of a short-term nominal interest, such as the federal funds rate in the United States. It ignores the role of leverage and also downplays the role of money in basic monetary theory and monetary policy analysis. But as the federal funds rate has reached the zero lower bound and the Federal Reserve is in a liquidity trap, the issue is whether there is a useful role of leverage and monetary aggregates in monetary policy and business cycle analysis. We address these issues and argue that there is a need for financial stability policies to manage the leverage cycle and reduce the procyclicality of the financial system. We also argue that in the aftermath of the global financial crisis and Great Contraction there is a need to get away from the New Keynesian thinking and back toward a quantity theory approach to monetary policy, based on properly measured monetary aggregates, such as the new Center for Financial Stability Divisia monetary aggregates.     

Reserve Banks,the Discount Rate Recommendation,and FOMC Policy

In the United States, private citizens play little direct role in policymaking. The directors of the boards of the regional Federal Reserve banks are an apparent exception to this rule. These directors recommend changes in the discount rate, although the Board of Governors decides whether to act on the recommendations. These directors would have greater influence if they affected the FOMC votes of their district bank presidents. This paper shows that the FOMC votes of the regional bank presidents are strongly correlated with the discount rate recommendation of their bank's board. Several alternative explanations for the correlation are then examined.     

Responding to a Monetary Superpower: Investigating the Behavioral Spillovers of U.S. Monetary Policy

Between 2002 and 2006, the Federal Reserve set interest rates significantly below the rates suggested by well-known monetary policy rules. There is a growing body of research suggesting that this helped fuel an excess of liquidity in the U.S. that contributed to the 2008 worldwide financial crash. It is less well known that a number of other central banks also lowered interest rates during this period. An important question, then, is what role the Federal Reserve played in influencing other central banks to alter their own monetary policies, which could have magnified the Fed’s actions in creating global liquidity. This paper addresses the issue by showing how spillovers in central bank behavior occur in theoretical rational expectations models. It then establishes empirically how U.S. monetary policy actions affect the actions of other major central banks, particularly in terms of interest rates and currency interventions. The models and data suggest that the U.S. lowering its policy rate, either in general or in reference to a monetary policy rule, influences other central banks to lower their own policy rates and intervene in currency markets, even when controlling for worldwide macroeconomic trends. It thus appears that U.S. actions were a factor in the worldwide lowering of interest rates and the increase in currency reserves in the early 2000s that may have contributed to the subsequent global liquidity boom.     

解读西方“定量宽松”政策与中国的对应

继2009年3月12日瑞士央行入市干预瑞士法郎加速“货币贬值”后,3月18日关联储宣布购买3000亿美元长期国债和1．25万亿美元抵押贷款证券,就此西方进入了“定量宽松”货币政策时期。为应对西方“定量宽松”货币政策的出台和加快国际货币体制的改革,中国人民银行行长周小川提出的在国际货币基金组织（IMF）现有的特别提款权（SDR）基础上,构建“超主权国际储备货币”的建议在经济学界引起了广泛的热议。     

美国量化宽松政策的溢出效应及对中国的影响

次贷危机爆发后,美联储为促进经济复苏,采取了扩张性财政政策和货币政策及非常规的量化宽松政策,向经济注入大量的流动性。现行的国际货币体系是以美元为主导的国际货币体系,美元作为国家货币充当国际货币使得位于中心的美国获得了铸币税,而其它国家则更多地承担了通货膨胀和金融危机的成本。当前美国量化宽松货币政策的溢出效应对中国的影响包括通货膨胀、人民币升值压力和外汇储备的损失。     

The Fed as the Engine of Worldwide Inflation

The United States is a sovereign country that has the right to follow its own monetary policy. By an accident of history, since 1945 it is also the center of the world dollar standard—which remains surprisingly robust to the present day. So the choice of monetary policy by the U.S. Federal Reserve can strongly affect its neighbors for better or for worse. Beginning with the Nixon shock in 1971, American policy makers have frequently ignored foreign complaints. But by ignoring feedback effects from the rest of the world, the Fed has made both the world and American economies less stable.     

U.S. Monetary Policy since the 1950s and the Changing Content of FOMC Minutes

Content analysis is used to analyze 60 years of Federal Open Market Committee (FOMC) minutes. Since there is no unique algorithm to quantify content, two different algorithms are applied. Wordscores compares content relative to a chosen benchmark, while DICTION is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text. The resulting indicators are then incorporated into a VAR. The content of FOMC minutes is found to be significantly related to the state of the economy, notably real GDP growth, and changes in the fed funds rate. However, the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag. Both content indicators also suggest substantive changes in the content of FOMC minutes since the 1950s in terms of the FOMC's dovishness or hawkishness.     

Monetary policy committee size and inflation volatility

Previous research on the optimal size of a monetary policy committee (MPC) focused on theoretical analyses and experimental studies. These studies suggest that the ideal monetary policy committee may not have many more than five members. In this paper we conduct an empirical cross-country study to explore whether there is a link between the size of an MPC and inflation volatility. The analysis for 75 countries which have adopted MPCs provides some support for the above suggestion: countries with less than five MPC members tend to have larger deviations from trend inflation than MPCs with five members; raising the number of MPC members above five does not contribute to a further reduction in volatility.     

Too Many Cooks? Committees in Monetary Policy

How many people should decide monetary policy? In this article, we take an empirical perspective on this issue and analyze the relationship between the number of monetary policy decision makers and monetary policy outcomes. Using a new data set that characterizes central bank monetary policy committees (MPCs) in more than 30 countries from 1960 through 2006, we find a U‐shaped relationship between MPC size and inflation; our results suggest that the lowest level of inflation is reached at MPCs with an intermediate size of about five to nine members. Similar results are obtained for inflation variability. Other MPC characteristics also matter for monetary policy outcomes, though to a smaller degree. For instance, the membership composition of the MPC as well as the frequency of MPC membership turnover appears to affect economic variables.     

Monetary Policy and Natural Disasters in a DSGE Model

In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This article uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that the standard Taylor rule response in models with and without nominal rigidities is to increase the nominal interest rate. That finding is unchanged when we consider the optimal policy response to a disaster. A nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities.     

The Feldstein-Horioka puzzle: The IS-LM model with optimal policy

The high correlations between saving and investment, which suggest a small variability of the current account, is explored within an IS-LM framework. While Feldstein and Horioka interpret this evidence to imply a low degree of capital mobility, the pattern of shocks to the model is also important. If the monetary authorities are pegging domestic rates to foreign returns, then we would expect the Feldstein-Horioka evidence even under high mobility. We explore whether such a rule is optimal when policymakers wish to avoid income variability where fiscal and monetary policy are coordinated and where monetary policy must act alone. We suggest that the Voicker Federal Reserve switched to the latter stance and created a dramatic exception to the Feldstein-Horioka paradox.     

The information in the high-yield bond spread for the business cycle: evidence and some implications

The market for high-yield (below-investment-grade) corporatebonds developed in the middle 1980s. We show that, since thistime, the high-yield spread has had significant explanatorypower for the business cycle. We interpret this finding as possiblysymptomatic of financial factors at work in the business cycle,along the lines suggested by the financial accelerator. We alsoshow that over this period the high-yield spread outperformsother leading financial indicators, including the term spread,the paper-bill spread, and the Federal Funds rate. We conjecturethat changes in the conduct of monetary policy over time mayaccount for the reduced informativeness of these alternativeindicators, all of which are tied closely to monetary policy.     

Is the US quantitative easing more effective than China's? A second thought

We study the balance sheet of the People's Bank of China and the Federal Reserve Bank in a historical context and analyze whether the recent round of global expansionary monetary policy has been effective in achieving its desired economic effects. In particular, we focus on the roles played by excess reserves, monetary aggregates and financing to the real economy and highlight the tension between a liquid financial sector and an illiquid real sector. We show that, while both China and the US have followed reserve-driven growth strategies, the compositions and relative sizes of these quantities are quite different. In relative terms, excess reserves and lackluster corporate lending constitute a big problem for the US, whereas for China the pertinent question is how to further mobilize funds tied up in the real estate and stock market. We provide some thoughts on possible solutions to the current policy dilemma at the end.