My analysis of low rates and monetary policy–link to Ben Bernanke comments and FEDS version

My paper from the spring Brookings meeting, with John Roberts, has been published in FEDS.  Ben Bernanke discusses the paper here.


Monetary Policy in a Low Interest Rate World

Interest rates may be near zero 40 percent of the time.  My paper (with John Roberts) on the consequences from Brookings.  For a summary, see the FT.

Summer’s End — and a reading list to catch up on what you may have missed

Labor Day weekend brings the end of summer.  Some papers you may have missed:

Nakata and Schmidt: A description of how to adjust settings from simple Taylor rules to achieve an inflation target, on average, when interest rates are affected by the effective lower bound.

Ajello, Laubach, Lopez-Salido, and Nakata find that Bayesian and robust central banks will respond more aggressively to financial instability when the probability and severity of financial crises are uncertain.

David Reifschneider suggests that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited to cut short-term interest rates in most, but probably not all, circumstances.

The Phillips Curve and Inflation

My slides for the SF Fed Symposium, “The Future of Inflation”:  While the reduced-form Phillips Curve appears near death, this can be explained by structural factors and the links between inflation and resource utilization are alive and well.

A lot of related research is reviewed, including reduced-form empirical work (Ball and Mazumder (2011)Blanchard (2016)), the literature on inflation and long-term unemployment (Ball and Mazumder (2014)Kiley (2015)), lack of participation as slack (Erceg and Levin (2014)), DSGE models (Del Negro, Giannoni, and Schorfheide (2015)Christiano, Eichenbaum, and Trabandt (2015)Chung, Herbst, and Kiley (2015)), and expectations (Coibion and Gorodnichenko (2015)Kiley (2016)).

Risks Associated with Low Inflation

Recent papers from the Federal Reserve on

The factors that influence the degree to which low inflation impedes economic performance: Arias, Erceg, and Trabandt (2016)

The interaction of the zero-lower bound on nominal interest rates and the expected rate of inflation in a standard class of macroeconomic models: Hills, Nakata, and Schmidt (2016)

How effective is quantitative easing in stimulating economic activity and raising inflation?

My main research contributions on this topic have now each been published.

Quantitative easing lowers Treasury and corporate bond yields, but the pass through to corporate bond yields is more modest than that associated with a lower federal funds rate: Kiley (2016)

As a result, overall financial conditions improve by less with quantitative easing than with similar movements in the federal funds rate: Kiley (2014a)

And this evidence is consistent with the more limited stimulus associated with long-term interest rates relative to short-term interest rates: Kiley (2014b)