Friday, April 4, 2014

Fed Paper on Unconventional Monetary Policy

A paper by J. Rogers (FRB), C.Scotti, and J.Wright (Johns Hopkins) was reported in the Wall Street Journal, but it has been out for a while.  We had read it, and it's interesting.  But, it limits its questions to the paths of interest rates, stock prices and exchange rates under the unconventional policies across developed economies.

The paper does not address our question about the broader and much more significant, unintended consequences of the policies, especially for the future. For the question asked, the unconventional policy and its communication to the market performed in line with standard policies, especially as regards bond yields.

The paper indirectly points out the market's acceptance of the Bernanke Fed's communications or forward guidance code, which certainly became as comfortable as an old flannel shirt.  As regards the Yellen Fed, "We aren't in Kansas any more, Toto."

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