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Kenneth D Garbade - One of the best experts on this subject based on the ideXlab platform.
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origins of the Federal Reserve book entry system
Social Science Research Network, 2004Co-Authors: Kenneth D GarbadeAbstract:The conversion of U.S. Treasury securities from physical to book-entry form was a major event in the history of the Treasury market. The conversion, which began in 1966, resulted in an automated system that has greatly reduced market operating costs and risks. This article examines the origins and development of the Federal Reserve book-entry system for Treasury securities. It suggests that the system was the product of three important factors: the interest of the Federal Reserve Banks and the Treasury in lowering their operating costs and risks, the intention of the Reserve Banks and the Treasury to pReserve the liquidity of the market, and the desire of the Reserve Banks to reduce member bank operating costs. Two critical incidents - a loss of securities at a Reserve Bank in 1962 and an insurance crisis in 1970-71 - played major roles in the early development and subsequent expansion of the book-entry system.
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origins of the Federal Reserve book entry system
Federal Reserve Bank of New York Economic policy review, 2004Co-Authors: Kenneth D GarbadeAbstract:* In the mid-1960s, U.S. Treasury securities were represented by physical certificates setting forth the government's promises to pay interest and principal on the debt. * The costs and risks associated with safekeeping and transferring bearer Treasury securities had become so large that market participants sought more efficient ways to manage the securities. * In response, the U.S. Treasury and the Federal Reserve in 1966 began to convert Treasury securities to book-entry, or nonphysical, form. * The conversion was driven by the interest of the Reserve Banks and Treasury in lowering their operating costs and risks, the desire of the Reserve Banks and Treasury to pReserve market liquidity, and the goal of the Reserve Banks to prune member bank operating costs. * The book-entry system that emerged led to a Treasury market with sharply lower operating costs and risks. 1. Introduction It is difficult to imagine the modern Treasury securities market operating in the absence of a book-entry system. Nevertheless, as recently as the mid-1960s, the U.S. government's promises to pay interest and principal were evidenced exclusively by engraved certificates setting forth the promises in writing. That practice changed in 1966, when Treasury securities began to be converted to book-entry, or nonphysical, form. The conversion, completed over two decades (see time line on next page), led to a market with sharply lower operating costs and risks. This article examines the origins and early development of the Federal Reserve's book-entry system--the system most closely associated with the elimination of definitive, or certificated, Treasury securities. We suggest that the Fed's system was the product of three important factors: the desire of the Reserve Banks and the U.S. Treasury to reduce their operating costs and risks, the interest of the Reserve Banks and the Treasury in preserving the liquidity of the Treasury market, and the goal of the Reserve Banks to decrease member bank operating costs. Despite the significance of these factors, the early history of the book-entry system suggests that the mere prospect of greater efficiency may not always suffice to bring about rapid change that requires coordination among diverse market participants. The pace of change may also depend on incidents that focus attention, provide motivation, and create a commonality of interests. Two such "shocks" spurred the development of the book-entry system. The first, a loss of $7.5 million of Treasury securities at a Federal Reserve Bank in 1962, provided the initial impetus for a limited system designed to reduce the costs and risks of custodial services already provided by the Reserve Banks. The second, an "insurance crisis" that threatened to impair the liquidity of the Treasury market in 1970-71, injected a sense of urgency into expanding the system to include securities that were not safekept at Reserve Banks. The repercussions of these two incidents were critical factors in motivating market participants to move from definitive to book-entry securities as quickly as they did. [GRAPHIC OMITTED] The article proceeds as follows. In Section 2, we describe the ownership and transfer of definitive Treasury securities prior to 1966. Section 3 presents the origins of an important early-stage book-entry system: the Government Securities Clearing Arrangement (GSCA), sponsored by the Federal Reserve Bank of New York. Finally, the development of the larger, Systemwide book-entry system is explained in Sections 4 and 5. 2. Ownership and Transfer of Definitive Treasury Securities As of the early 1960s, definitive Treasury bonds came in two forms: bearer and registered. Outside of residual quantities of three dozen issues due to mature before the end of 2016, neither form exists today. This section describes the two forms and explains why secondary-market transactions were usually settled with bearer bonds. …
Soyeon Caren Han - One of the best experts on this subject based on the ideXlab platform.
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fednlp an interpretable nlp system to decode Federal Reserve communications
International ACM SIGIR Conference on Research and Development in Information Retrieval, 2021Co-Authors: Jean Lee, Hoyoul Luis Youn, Nicholas Stevens, Josiah Poon, Soyeon Caren HanAbstract:The Federal Reserve System (the Fed) plays a significant role in affecting monetary policy and financial conditions worldwide. Although it is important to analyse the Fed's communications to extract useful information, it is generally long-form and complex due to the ambiguous and esoteric nature of content. In this paper, we present FedNLP, an interpretable multi-component Natural Language Processing (NLP) system to decode Federal Reserve communications. This system is designed for end-users to explore how NLP techniques can assist their holistic understanding of the Fed's communications with NO coding. Behind the scenes, FedNLP uses multiple NLP models from traditional machine learning algorithms to deep neural network architectures in each downstream task. The demonstration shows multiple results at once including sentiment analysis, summary of the document, prediction of the Federal Funds Rate movement and visualization for interpreting the prediction model's result. Our application system and demonstration are available at https://fednlp.net.
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fednlp an interpretable nlp system to decode Federal Reserve communications
arXiv: Computation and Language, 2021Co-Authors: Jean Lee, Hoyoul Luis Youn, Nicholas Stevens, Josiah Poon, Soyeon Caren HanAbstract:The Federal Reserve System (the Fed) plays a significant role in affecting monetary policy and financial conditions worldwide. Although it is important to analyse the Fed's communications to extract useful information, it is generally long-form and complex due to the ambiguous and esoteric nature of content. In this paper, we present FedNLP, an interpretable multi-component Natural Language Processing system to decode Federal Reserve communications. This system is designed for end-users to explore how NLP techniques can assist their holistic understanding of the Fed's communications with NO coding. Behind the scenes, FedNLP uses multiple NLP models from traditional machine learning algorithms to deep neural network architectures in each downstream task. The demonstration shows multiple results at once including sentiment analysis, summary of the document, prediction of the Federal Funds Rate movement and visualization for interpreting the prediction model's result.
David H Romer - One of the best experts on this subject based on the ideXlab platform.
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the most dangerous idea in Federal Reserve history monetary policy doesn t matter
The American Economic Review, 2013Co-Authors: Christina D Romer, David H RomerAbstract:The hundredth anniversary of the founding of the Federal Reserve is a natural time to reflect on the record of US monetary policy. It is widely agreed that this record is far from perfect, and that there have been some major failures of monetary policy over the past century. Our thesis is that overly pessimistic views about the power of monetary policy have been a critical source of these failures. There is little doubt that the opposite problem—an overinflated belief in the power of monetary policy—has also contributed to important policy errors. Most famously, policymakers in the mid-1960s believed that they faced a longrun inflation-unemployment trade-off, and thus that monetary policy could move the economy to a sustained path of very low unemployment and low inflation. This belief led them to pursue highly expansionary policy, starting the economy down the road to the inflation of the 1970s (for example, Romer and Romer 2002 and Primiceri 2006). The record of such errors has led some to argue that perhaps the most impor tant attribute of a successful central banker is humility (for example, Booth 2012). In this paper, we present evidence that an unduly pessimistic view of what monetary policy can accomplish has been a more impor tant source of policy errors and poor outcomes over the history of the Federal Reserve. At various times in the 1930s, faced with the Great Depression, Federal Reserve officials believed that the power of monetary policy to combat the downturn or stimulate recovery was minimal. In
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Federal Reserve information and the behavior of interest rates
The American Economic Review, 2000Co-Authors: Christina D Romer, David H RomerAbstract:This paper tests for the existence of asymmetric information between the Federal Reserve and the public by examining Federal Reserve and commercial inflation forecasts. It demonstrates that the Federal Reserve has considerable information about inflation beyond what is known to commercial forecasters. It also shows that monetary-policy actions provide signals of the Federal Reserve's information and that commercial forecasters modify their forecasts in response to those signals. These findings may explain why long-term interest rates typically rise in response to shifts to tighter monetary policy.
Campbell R. Harvey - One of the best experts on this subject based on the ideXlab platform.
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the impact of the Federal Reserve bank s open market operations
Journal of Financial Markets, 2002Co-Authors: Campbell R. Harvey, Roger D. HuangAbstract:Abstract The Federal Reserve Bank has the ability to change the money supply and to shape the expectations of market participants through their open market operations. These operations may amount to 20% of the day's volume and are concentrated during the half hour known as “Fed Time”. Using previously unavailable data on open market operations from 1982 to 1988, our paper provides the first comprehensive examination of the impact of the Federal Reserve Bank's trading on both fixed income instruments and foreign currencies. Our results detail a dramatic increase in volatility during Fed Time, consistent with market expectations of Fed intervention during this time interval. We find that there is little systematic difference in market impact between Reserve-draining and Reserve-adding operations. Additionally, Fed Time volatility is, on average, higher on days when open market operations are absent. These results suggest that the markets are potentially confused about the purpose of the open market operations during our sample period. The evidence is also consistent with the Fed operations conveying information which smooths market participants’ expectations.
Michael D Bordo - One of the best experts on this subject based on the ideXlab platform.
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incorporating scenario analysis into the Federal Reserve s policy strategy and communications
National Bureau of Economic Research, 2020Co-Authors: Michael D Bordo, Andrew T Levin, Mickey D LevyAbstract:The U.S. economy currently faces a truly extraordinary degree of uncertainty as a consequence of the COVID-19 pandemic. In these circumstances, the Federal Reserve could begin highlighting alternative scenarios to illustrate key risks to the economic outlook, and such scenarios could inform the Fed’s policy strategy and public communications. In this paper, we present a set of illustrative scenarios, including a baseline scenario with a rapid but incomplete recovery this year (an upward-tilting checkmark), a benign scenario in which an effective cure or vaccine becomes available and facilitates a nearly complete recovery by mid-2021, and a severely adverse scenario involving persistently high unemployment and disinflationary pressures. Insights into these scenarios can be drawn from key historical episodes, including the Spanish flu, the Great Depression, the end of World War II, and the global financial crisis. We conclude by identifying key challenges that the Federal Reserve might face in adjusting its monetary policy and emergency credit facilities under each of these alternative scenarios.
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Federal Reserve structure economic ideas and monetary and financial policy
Social Science Research Network, 2019Co-Authors: Michael D Bordo, Edward Simpson PrescottAbstract:The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure by allowing for more competition in ideas and reducing groupthink. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Federal Reserve structure economic ideas and monetary and financial policy
Research Papers in Economics, 2019Co-Authors: Michael D Bordo, Edward Simpson PrescottAbstract:The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve?s decentralized structure and contributes to better policy by allowing for more competition in ideas and reducing groupthink.
