Term Structure Transmission of Monetary Policy

Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy. Another possible explanation is time-varying term premiums with risk pricing that depends on inflation. The authors present a no-arbitrage model of the term structure with horizon-dependent policy perceptions and time-varying term premiums to illustrate the mechanics and provide empirical results that support these transmission channels.Interest rates; Transmission of monetary policy

Survey-Based Estimates of the Term Structure of Expected U.S. Inflation

Surveys provide direct information on expectations, but only short histories are available at quarterly frequencies or for long-horizon expectations. Longer histories typically contain only semi-annual observations of short-horizon forecasts. The authors fill in the gaps by constructing a 50-year monthly history of expected inflation at all horizons from one month to 10 years that is consistent with inflation data and infrequent survey data. In the process, some models that fit inflation well are found to generate forecasts that bear little resemblance to survey data. Also, survey data on near-term expectations are found to contain considerable information about long-horizon views. The estimated long-horizon forecast series, a measure of the private sector’s perception of the inflation target of monetary policy, has shifted considerably over time and is the source of some of the persistence of inflation. When compared with estimates of the effective inflation goal of policy, these perceptions suggest that monetary policy has been less than fully credible historically.Inflation and prices; Inflation targets; Uncertainty and monetary policy

Permanent and Transitory Policy Shocks in an Empirical Macro Model with Asymmetric Information

Despite a large literature documenting that the efficacy of monetary policy depends on how inflation expectations are anchored, many monetary policy models assume: (1) the inflation target of monetary policy is constant; and, (2) the inflation target is known by all economic agents. This paper proposes an empirical specification with two policy shocks: permanent changes to the inflation target and transitory perturbations of the short-term real rate. The public sector cannot correctly distinguish between these two shocks and, under incomplete learning, private perceptions of the inflation target will not equal the true target. The paper shows how imperfect policy credibility can affect economic responses to structural shocks, including transition to a new inflation target – a question that cannot be addressed by many commonly used empirical and theoretical models. In contrast to models where all monetary policy actions are transient, the proposed specification implies that sizable movements in historical bond yields and inflation are attributable to perceptions of permanent shocks in target inflation.transmission mechanism, learning, policy credibility, time-varying natural rate, shifting endpoint, inflation target, term structure of interest rates

Permanent and Transitory Policy Shocks in an Empirical Macro Model with Asymmetric Information

Despite a large literature documenting that the efficacy of monetary policy depends on how inflation expectations are anchored, many monetary policy models assume: (1) the inflation target of moentary policy is constant; and, (2) the inflation target is known by all economic agents. This paper proposes an empirical specification with two policy shocks: permanent changes to the inflation target and transitory perturbations of the short-term real rate. The public sector cannot correctly distinguish between these two shocks and, under incomplete learning, private perceptions of the inflation target will not equal the true target. The paper shows how imperfect policy credibility can affect economic responses to structural shocks, including transition to a new inflation target--a question that cannot be addressed by many commonly used empirical and theoretical models. In contrast to models where all monetary policy actions are transient, the proposed specification implies that sizable movements in historical bond yields and inflation are attributable to perceptions of permanent shocks in target inflationtransmission mechanism, learning, policy credibility, time-varying natural rates, shifting endpoint, inflation target, term structure of interest rates

Perhaps the FOMC did what it said it did : an alternative interpretation of the Great Inflation

This paper uses real-time briefing forecasts prepared for the Federal Open Market Committee (FOMC) to provide estimates of historical changes in the design of US monetary policy an in the implied central bank target for inflation. Empirical results and FOMC transcripts support a neglected interpretation of policy during the Great inflation of the 1970’sFederal Open Market Committee

Perhaps the FOMC Did What It Said It Did: An Alternative Interpretation of the Great Inflation

This paper uses real-time briefing forecasts prepared for the Federal Open Market Committee (FOMC) to provide estimates of historical changes in the design of U.S. monetary policy and in the implied central-bank target for inflation. Empirical results support a description of policy with an effective inflation target of roughly 7 percent in the 1970s. Moreover, the evidence suggests that mismeasurement of the degree of economic slack was largely irrelevant for explaining the Great Inflation while favouring a passive-policy description of monetary policy. FOMC transcripts provide a neglected interpretation of the source of passive policy--intermediate targeting of monetary aggregates.Central bank research; Monetary aggregates; Monetary policy implementation

Term structure transmission of monetary policy

Under bond rate transmission of monetary policy, standard restrictions on policy responses to obtain determinate inflation need not apply. In periods of passive policy, bond rates may exhibit stable responses to inflation if future policy is anticipated to be active, or if time-varying term premiums incorporate inflation-dependent risk pricing. We derive a generalized Taylor Principle that requires a lower bound to the average anticipated path of forward rate responses to inflation. We also present a no-arbitrage term structure model with horizon-dependent policy and time-varying term premiums to explain mechanics and provide empirical results supporting these channels

Perhaps the 1970s FOMC did what it said it did

Briefing forecasts prepared for the Federal Open Market Committee (FOMC) are used to estimate changes in the design of US monetary policy and in the implied policy target for inflation from 1970 through 1997. Both estimated policy rate responses and FOMC transcripts are consistent with intermediate targeting of monetary aggregates throughout the Great Inflation of the 1970s. The unpublished FOMC targets for M1 growth are tabulated. Empirical results support an effective inflation target of roughly 7% in the 1970s and 3% thereafter. A notable difference in the 1970s monetary policies of the US and Germany is the absence of explicit public objectives for US long-run inflation

Active Brownian Particles. From Individual to Collective Stochastic Dynamics

We review theoretical models of individual motility as well as collective dynamics and pattern formation of active particles. We focus on simple models of active dynamics with a particular emphasis on nonlinear and stochastic dynamics of such self-propelled entities in the framework of statistical mechanics. Examples of such active units in complex physico-chemical and biological systems are chemically powered nano-rods, localized patterns in reaction-diffusion system, motile cells or macroscopic animals. Based on the description of individual motion of point-like active particles by stochastic differential equations, we discuss different velocity-dependent friction functions, the impact of various types of fluctuations and calculate characteristic observables such as stationary velocity distributions or diffusion coefficients. Finally, we consider not only the free and confined individual active dynamics but also different types of interaction between active particles. The resulting collective dynamical behavior of large assemblies and aggregates of active units is discussed and an overview over some recent results on spatiotemporal pattern formation in such systems is given.Comment: 161 pages, Review, Eur Phys J Special-Topics, accepte