Testing the Expectations Hypothesis: Some New Evidence for Japan

The deregulation of the Japanese financial markets and the adoption of an interest rate policy instrument by the Bank of Japan prompted a number of empirical investigations of the expectations hypothesis (EH) of the term-structures of interest rates in Japan. This paper is a continuation of this research. It deviates from the previous work on the EH in Japan in two respects. First, it tests the EH by estimating a general vector autoregression (VAR) of the long-term and short-term rates and testing the restrictions implied by the EH on the VAR using a Lagrange multiplier (LM) test. Second, the issue of stationarity of interest rates is considered. The paper not only considers the possibility that Japanese interest rates are nonstationary, but also analyzes the implications of nonstationarity for the EH.

Which comes first: inflation or the FOMC's funds rate target?

Must the FOMC increase its target before inflation, or will inflation increase and cause the FOMC to increase its target?Inflation (Finance) ; Federal funds rate ; Federal Open Market Committee

The downside of quantitative easing

Current excess reserves could create a massive increase in the money supply if banks significantly increase their lending or investing.Monetary policy - United States ; Money supply ; Financial crises

How did we get to inflation targeting and where do we go now? a perspective from the U.S. experience

This paper advances the hypothesis that the transition from there-is-little-central-banks-can-do-to-control-inflation to inflation targeting occurred because central banks, especially the Federal Reserve, demonstrated that central banks can control inflation rather than a consequence of marked improvement in the professions understanding of how monetary policy controls inflation. As consequence, monetary theorists and central bankers have returned to a Phillips curve framework for formulating and evaluating the monetary policy. I suggest that the return to the Phillips curve framework endangers the continued effectiveness, and perhaps even viability, of inflation targeting, recommend three steps that inflation-targeting central banks should take to preserve and strengthen inflation targeting.Monetary policy ; Phillips curve ; Inflation targeting

Is the FOMC’s policy inflating asset prices?

Keeping the policy rate significantly and persistently below "long-run equilibrium rates" may inflate asset prices.Federal Open Market Committee ; Asset pricing

Would quantitative easing sooner have tempered the financial crisis and economic recession?

Would financial markets and the economy have been better off if the Fed pursued a policy of quantitative easing sooner?Financial crises

Money in a theory of exchange

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The funds rate target and interest rates

Federal funds rate ; Interest rates

The FOMC in 1982: de-emphasizing M1

Federal Open Market Committee ; Money supply ; Monetary policy

The borrowed-reserves operating procedures: theory and evidence

Money supply ; Federal funds market (United States) ; Monetary policy - United States