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FOMC members account for international environment

What role does the international environment play in shaping US monetary policy decisions? To measure its influence, we construct an international indicator extracted from minutes of Fed monetary policy committee meetings. In a Taylor rule model, we show that the indicator has a significant and negative impact on the fed funds rate. Discussions centred more on the international environment may thus be associated with greater monetary policy easing.

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Impact of uncertainty shocks on the global economy

We had a great workshop at UCL in London, May 12-13, on the role of uncertainties in the global economy. See the summary on Econbrowser.

The 2 keynote speakers gave fantastic talks. Nick Bloom (Stanford) gave a cristal-clear speech on the role of uncertainty on macro and financial variables, while Barbara Rossi (UPF) introduced an approach to disentangle between Knigthian uncertainty and risk based of SPF density forecasts.

Many other papers from researchers from Fed Board, Banque de France, IMF, U. Notre Dame, LSE, Pompeu Fabra, U. Oregaon, U. Padova, U. Chapel Hill … were great, see the program.

We plan to have a special issue in the Journal of International Money and Finance

Special thanks to Svetlana Makarova (UCL) for the great organisation.

Taylor rule and Markov-Switching

In a 2013 WP, David Papell et al. propose to extend standard Taylor rules for the US by allowing parameters to change over time. They assume that changes in parameters are driven by an unobserved Markov-Chain. They point out the response of the FED to inflation is regime dependent. Results show that the usual decomposition of samples between  pre and post-Volcker period is not necessarily the best choice.

Impact of tapering talks on EMEs

In May 2013, Ben Bernanke, Chairman of the FOMC, evoked the possible end the FED asset purchases program. The effects on financial conditions in emerging countries were immediate and quite large. In a NBER WP, Aizenman, Binici and Hutchinson (2014) showed that, in opposition to what could be expected, the effects were larger on emerging countries with stronger macro fundamentals (current accounts, reserves, external debt) than on fragile countries. Indeed they observe larger depreciation, larger drops in the stock market and a sharp increase in spreads. Some explanations are provided, including the fact that robust countries received larger inflows during the quantitative years, because of sound domestic financial markets, leading thus to a stronger adjustment afterwards.

US Phillips curve

In this paper with Giulia Sestieri we estimate a Phillips curve for the US for various measures of unemployment. By using conditional forecasts, we show that short-term unemployment reflects observed pressures on PCE inflation while long-term unemployment generates much less pressure.  This reflects the uncertainty faced by the Fed about monetary policy tightening.