Overresponse to short-run events and neglect of longer-term consequences of its actions is one of the main errors that the Federal Reserve makes repeatedly. The current recession offers many examples of actions that some characterize as bold and innovative. I regard many of these actions as...

In this paper we analyze changes in the Federal Reserve behavior and objectives since the1960s justified by potentially evolving beliefs—through a real-time learning process—aboutthe structure of the economy and shifts in policymakers' preferences in the late 1970s. In addition, we allow for...

This paper examines whether monetary policy reaction function matters for financial stability. We measure how responsive the Federal Reserve's policy appears to be to imbalances in the equity, housing and credit markets. We find that changes in these policy sensitivities predict the later...

I estimate the comparative causal effects of monetary policy "leaning against the wind" (LAW) and macroprudential policy on bank-level lending and leverage by drawing on a single natural experiment. In 1920, when U.S. monetary policy was still decentralized, four Federal Reserve Banks...

Should central banks use leaning against the wind (LAW)-type monetary or macroprudential policy to address risks to financial stability? We first assess LAW as a one-off (nonsystematic) policy using an estimated large-scale dynamic stochastic general equilibrium (DSGE) model with empirically...

The recovery from the recession after the financial crisis, in both the UK and the US, has been very slow compared with other similar events in history. During the period before the financial crash and afterwards, monetary policy deviated from the very effeective rules-based approach of the...

The recent financial crisis and the associated decline in economic activity have raised some important questions about economic activity and its links to the financial sector. This paper introduces an index of financial stress -- an index that was used in real time by the staff of the Federal...

This paper analyzes the pillar of the modern central bank governance – independence – offering three contributions. After a systematic review of the economics of central bank independence, a principal agent model is used to design a political economy framework, which explains how the...