A. Lee Smith

Federal Reserve Bank of Kansas City · Economic Research

For the second time in the brief 12-year period between 2008 and 2020, central banks have once again turned to asset purchase programs to combat a global economic downturn. While balance sheet expansions have become familiar, balance sheet normalization has proven more elusive. Nevertheless, an understanding of the consequences of unwinding asset p...

For the second time in the brief 12-year period between 2008 and 2020, central banks have once again turned to asset purchase programs to combat a global economic downturn. While balance sheet expansions have become familiar, balance sheet normalization has proven more elusive. Nevertheless, an understanding of the consequences of unwinding asset p...

In a macroeconomic model with drifting long-run inflation expectations, the anchoring of inflation expectations manifests in two testable predictions. First, expectations about inflation far in the future should no longer respond to news about current inflation. Second, better anchored inflation expectations weaken the relationship between unemploy...

We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. Empirically, we identify forward guidance shocks using unexpected changes in futures contracts around monetary policy announcements. We then embed these policy shocks in a vector autoregression to trace out their macroeconomic implications. Forward guidance sho...

This paper investigates the optimal monetary instrument in a New-Keynesian model with multiple monetary assets. We compare a standard interest rate rule to a k-percent rule for three alternative monetary aggregates determined within our model: the monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking....

This paper proposes a novel Bayesian approach to model realized data and survey forecast of the same variable jointly in a vector autoregression (VAR). In particular, our method imposes a prior distribution on the consistency between the forecast implied by the VAR and the survey forecast for the same variable. When the prior is placed on unconditi...

Deteriorating economic conditions in late 2008 led the Federal Reserve to lower the target federal funds rate to near zero, inject liquidity through novel facilities, and engage in large-scale asset purchases. The combination of conventional and unconventional policy measures prevents using the effective federal funds rate to assess the effects of...

The natural real rate of interest—the level of the real federal funds rate most consistent with the Federal Reserve’s statutory mandates of maximum sustainable employment and stable prices—is a key guidepost for monetary policy decisions. But most approaches used to estimate the natural rate, also known as r*, have not kept pace with the Federal Op...

In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank's inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper bound, but coefficients in the range of those on the Ta...

Oil price fluctuations since mid-2014 have not been driven primarily by current demand and supply conditions. Instead, shifts in expectations of future demand and the availability and stability of future supply have played the predominant role.

This article shows that forward guidance, as practiced by the FOMC since 2008, has had similar effects on the economy as past changes in the target federal funds rate. Policy guidance signaling that the federal funds rate would remain lower in the future than previously expected has led to increases in employment and prices. Moreover, the peak effe...

This paper develops a nancial mechanism which integrates housing and the real econ- omy through housing-secured debt. In this environment, movements in home prices are ampli ed through both borrowers and banks' balance sheets, leading to a self-reinforcing credit/liquidity crunch. When placed within a traditional business cycle model, this - financ...