Tuesday , November 24 2020
Home / Tag Archives: Federal Reserve

Tag Archives: Federal Reserve

Programmable money isn’t new, we’ve had it for ages

I often hear that modern money just isn't up to snuff because it isn't programmable. That's why we need Ethereum, stablecoins, and other exotica like central bank digital currencies. These platforms will provide the world with much needed programmability.Stablecoin issuer Circle is one of the bigger marketers of this idea, but it's far from being the only one: "While value exchange may be the initial killer app, it’s the programmability of digital money that will ultimately usher in...

Read More »

Emerging and Frontier Markets: Policy Tools in Times of Financial Stress

By Dimitris Drakopoulos, Rohit Goel, Fabio Natalucci, and Evan Papageorgiou عربي, 中文, Español, Français After the unprecedented hit to economic activity in emerging market economies from the COVID-19 pandemic, their economic output is projected to shrink by 3.3 percent in 2020. Central banks across emerging markets responded swiftly and forcefully with an unprecedented response of their own. They did this by using a variety of policy tools and, to a great extent, helped stabilize markets and...

Read More »

Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic

Anna Kovner and Antoine Martin First of three posts The Federal Reserve’s response to the coronavirus pandemic has been unprecedented in its size and scope. In a matter of months, the Fed has, among other things, cut the federal funds rate to the zero lower bound, purchased a large amount of Treasury securities and agency mortgage‑backed securities (MBS) and, together with the U.S. Treasury, introduced several lending facilities. Some of these facilities are very similar to...

Read More »

Explaining the Puzzling Behavior of Short-Term Money Market Rates

Antoine Martin, James J. McAndrews, Ali Palida, and David Skeie Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic....

Read More »

Market Function Purchases by the Federal Reserve

Kenneth D. Garbade and Frank M. Keane In response to disorderly market conditions in mid-March 2020, the Federal Reserve began an asset purchase program designed to improve market functioning in the Treasury and agency mortgage-backed securities (MBS) markets. The 2020 purchases have no parallel, but there are several instances of large SOMA purchases undertaken to support Treasury market functions in earlier decades. This post recaps three such episodes, one in 1939 at the start of...

Read More »

MBS Market Dysfunctions in the Time of COVID-19

Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song The COVID-19 pandemic elevated financial market illiquidity and volatility, especially in March 2020. The mortgage-backed securities (MBS) market, which plays a critical role in the housing market by funding the vast majority of U.S. residential mortgages, also suffered a period of dysfunction. In this post, we study a particular aspect of MBS market disruptions by showing how a long-standing...

Read More »

Federal Reserve Agency CMBS Purchases

Woojung Park, Julia Gouny, and Haoyang Liu On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market...

Read More »

A New Reserves Regime? COVID-19 and the Federal Reserve Balance Sheet

Gara Afonso, Marco Cipriani, Gabriele La Spada, and Will Riordan Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve...

Read More »

Leverage Ratio Arbitrage All Over Again

Donald P. Morgan, Dong Beom Choi, and Michael R. Holcomb Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect...

Read More »

Municipal Debt Markets and the COVID-19 Pandemic

Marco Cipriani, Andrew Haughwout, Ben Hyman, Anna Kovner, Gabriele La Spada, Matthew Lieber, and Shawn Nee In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show...

Read More »