Ekaterina Peneva, Jeremy Rudd, and Daniel VillarThis paper examines the Board staff’s inflation forecast misses over the years following the COVID-19 outbreak, focusing on a timeline of what staff members knew when and lessons learned along the way.
Brent Bundick, Isabel Cairó, and Nicolas Petrosky-NadeauThis paper reviews recent academic studies to assess the implications of adopting a shortfalls, rather than a deviations, approach to pursuing maximum employment. Model-based simulations from these studies suggest three main findings. First, shortfalls rules generate inflationary pressure relative to deviations rules, which offsets downward pressure on inflation stemming from the presence of the effective lower bound.
Christopher Foote, Shigeru Fujita, Amanda Michaud, and Joshua MontesWe suggest a core set of indicators for evaluating the position of the labor market relative to maximum employment. The unemployment rate remains the key indicator of the cyclical position of the labor market, as it is time-tested, is highly correlated with other indicators, and has practical measurement advantages. But other indicators can provide complementary evidence to get a fuller picture of the labor market.
Grey Gordon, Julio Ortiz, and Benjamin SilkWe examine the experience of conducting reviews of monetary policy frameworks in the major advanced foreign economies since the Federal Open Market Committee's 2019–20 review. We find that periodic reviews are becoming the norm and have often been motivated by similar developments and challenges as those facing the Federal Reserve.
François Gourio, Benjamin K. Johannsen, and David López-SalidoIn this paper, we describe the Federal Reserve’s 2019–20 review of its monetary policy framework. First, we discuss the historical background of and motivation for the review.
We investigate the impact of climate risks on sovereign credit ratings worldwide. Our analysis shows that higher temperature anomalies and more frequent natural disasters – measures of physical risk – correlate with lower credit ratings. We find that long-term shifts in climate patterns (“chronic risk”) primarily affect advanced economies, while the increased frequency and severity of extreme weather events (“acute risk”) matters more for emerging economies. However, the estimated impact of both types of risk on credit ratings is low and the economic effects are negligible.
Our paper uses a general equilibrium framework to examine the effects of temperature on firm-level demand, productivity and input allocative efficiency. Using data from Italian firms and detailed climate data, it uncovers a sizeable negative effect of extreme temperatures on firm-level productivity. Based on these estimates, the model generates aggregate productivity losses from local temperature fluctuations that are higher than previously thought, ranging from 0.60% to 6.82% depending on the scenario and the extent of adaptation.
This article studies the supply of private safe assets by banks and its implications for financial stability. Banks originate loans and improve loan quality through hidden screening efforts. They can then create safe assets by issuing debt backed by the safe payoffs, from both loans they have originated and a diversified pool of loans from other banks. The interaction between banks’ screening efforts and diversification decisions determines the volume of safe assets they supply.
The recent surge in inflation has led to a significant increase in the frequency of price changes, making prices more flexible. Conventional models assume a constant price change frequency, but in state-dependent models the frequency varies with economic conditions. Price flexibility has an impact on the effectiveness of monetary policy. In high inflation periods, frequent price changes make monetary policy more effective in reducing inflation with less impact on economic activity. Therefore, monetary policy should be more aggressive during such periods to stabilise prices efficiently.
This article investigates how firms transmit monetary policy shocks to individual labour market outcomes at both the intensive and extensive margins. Using matched employer-employee administrative data from Germany, we study the effects of monetary policy shocks on individual employment and of labour income conditioning on characteristics of workers and firms. First, we find that the employment of workers at young firms is especially sensitive to monetary policy shocks.
