"Financial Market Effects of FOMC Projections", Journal of Macroeconomics, 2021


I examine the impact of the forecasts released by the Federal Reserve's Federal Open Market Committee (FOMC) in the Summary of Economic Projections over the period of April 2011 through March 2019. I find that changes in the median FOMC federal funds rate forecast did impact asset prices, but forecasts of output and inflation did not have any effect, which may be surprising based on the "Fed information effect" channel. Further, the dispersion in the federal funds rate forecast does not affect asset prices though it does impact the degree of uncertainty regarding future monetary policy. Finally, I find that most of forward guidance can be summarized through the change in the median federal funds rate forecast for the end of the following year.

Keywords: FOMC Projections, Forward Guidance, Asset PricesJEL Codes: E52, E58, E44

Works in Progress

Differences between Central Bank and Private Sector Policy Rate Forecasts: Causes and Implications for Monetary Policy

I document differences in interest rate expectations between central banks and the private sector. I then show why such a gap is a puzzle and offer several possible explanations for its existence. In particular, I find that at least some of this gap must be attributed to differences in beliefs about the central bank's reaction function. I also consider the macroeconomic implications of such a gap. First, I create a measure of central bank credibility by taking the absolute value of the difference in expectations. Then, I use this measure of credibility in an event study across several countries to demonstrate that a decrease in credibility can reduce the efficacy of forward guidance. In fact, I find that a gap of around 100 basis points can almost completely dampen the impact of the Federal Reserve's forward guidance.

Keywords: Credibility, Forward Guidance, Central Bank Projections, Market Expectations, Asset PricesJEL Codes: E52, E58, E44

Vacancies on the FOMC: What is the Cost?

I examine whether vacancies on the Board of Governors of the Federal Reserve are costly. I find little evidence to suggest that this is the case: monetary policy, the level of uncertainty regarding the future path of monetary policy, and the Board of Governor's supervisory and communication responsibilities are largely unaffected by the number of absences on the committee. I show that this low cost has important implications for the nomination process from both the perspective of the president and the Senate.

Keywords: FOMC, Vacancies, Board of Governors, NominationsJEL Codes: E58, E52, D72

Policy Rule by Committee