This Economic Letter takes a closer look at the effect of European Economic and Monetary Union (EMU) on long-term government bond yields in the four largest euro zone countries: France, Germany, Italy, and Spain.

Understanding long-term interest rate fluctuations requires one to understand what the term premium is and how it may change over time. In this Economic Letter, we define the term premium and explain the state of the art in measuring it. We conclude with some discussion of the limitations of our...

The U.S. economy is likely to reach the Federal Reserve’s maximum employment goal later this year. Although inflation has remained persistently low, it is expected to return to the Fed’s 2% target over the next few years. Due to the lags between monetary policy’s implementation and its...

Standard asset price models have generally failed to detect bubbles, with enormous costs to the economy. Economists are now creating promising new models that account for bubbles by relaxing the assumption of rational expectations and allowing people’s decisions to be driven by their...

Textbook monetary theory holds that increasing the money supply leads to higher inflation. However, the Federal Reserve has tripled the monetary base since 2008 without inflation surging. With interest rates at historically low levels and the economy still struggling, the normal money multiplier...

The economic outlook is increasingly positive, boosted by housing, banking, and labor market improvements. While the Federal Reserve recently eased its bond-buying program, indicating monetary policy is on the path back to normal, full normalization will take time and be based on economic data....

The Federal Reserve is on track to end asset purchases in the near future and has laid the groundwork for its plan to eventually normalize monetary policy by raising short-term interest rates. The process of policy normalization is unlikely to start soon, however, and its exact timing will...

Monetary policy is moving slowly and cautiously towards normalization. Signs of improvement—falling unemployment, better financial conditions, and abating headwinds—indicate the United States is changing from extraordinary economic times back to ordinary ones. Risks to the recovery’s...

The economy and the labor market have improved substantially since the Federal Reserve started its current $85 billion monthly asset purchase program last September. However, it will take further gains to demonstrate that the “substantial improvement” test for ending Fed asset purchases has...

The very real and sizable costs of using monetary policy to deal with risks to financial stability—along with the uncertain benefits of doing so—argues for finding alternative tools with more favorable tradeoffs. Policymakers should study ways to design policy frameworks that support...