This article examines the likely economic effects of a Chinese invasion or blockade of Taiwan for the U.S. and the world by considering historical precedents. Such a conflict would likely produce a flight-to-safety in the asset market, huge disruptions in international trade, and banking problems, and it would greatly exacerbate existing fiscal pressures. The authorities of the People's Republic of China would probably try to sell U.S. and other western securities prior to a conflict to avoid sanctions on those assets. Such sales would be temporarily disruptive but would likely have only marginal effects on yields in the longer term. Long-term effects would include disrupted trade, higher price levels, higher levels of nominal debt, and higher taxes.

Researchers have carefully studied post-meeting central bank communication and have found that it often moves markets, but they have paid less attention to the more frequent central bankers' speeches.We create a novel dataset of US Federal Reserve speeches and use supervised multimodal natural language processing methods to identify how monetary policy news affect financial volatility and tail risk through implied changes in forecasts of GDP, inflation, and unemployment.We find that news in central bankers' speeches can help explain volatility and tail risk in both equity and bond markets.We also find that markets attend to these signals more closely during abnormal GDP and inflation regimes.Our results challenge the conventional view that central bank communication primarily resolves uncertainty.

Stock prices often react sluggishly to news, producing gradual jumps and jump delays. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. Synchronizing mistimed stock returns on a fine sampling grid allows us to automatically detect noisy jumps and better approximate the true common jumps in related stock prices.

We investigate the behavior of shorts, considered sophisticated investors, before and after a set of Federal Reserve unconventional monetary policy announcements that spot bond markets did not fully anticipate. Short interest in agency securities systematically predicts bond price changes and other asset returns on the days of monetary announcements, particularly when growth or monetary news is released, indicating shorts correctly anticipate these surprises. Shorts also systematically rebalance after announcements in the direction of the announcement surprise when the announcement releases monetary or growth news, suggesting that shorts interpret these announcements to imply further yield changes in the same direction.

This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war, and asset price reactions strengthened from the first week- when there were hopes for a quick resolution-to the second week, when prices generally peaked and began to partially revert to prewar values. Exposure to commodity trade and trade with Russia and Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that markets saw the war as a measurable fiscal risk even for nonbelligerents. (JEL Q02, F51, G15, G32, H56)

The weight of the evidence indicates that unconventional monetary policy (UMP) shocks had persistent effects on yields. To make this point, this paper illustrates that the most influential SVAR model of UMP effects, which implies transient effects, exhibits structural instability, sensitivity to specification and single observations that render the conclusions unreliable. Restricted SVAR models that limit asset return predictability are more stable and imply that UMP shocks were persistent. This conclusion is consistent with evidence from micro studies, surveys of professional forecasters, and quantity-of-debt models. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.

This paper evaluates the literature on international unconventional monetary policies (UMPs). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMPs influenced international asset prices and tail risk in the desired manner. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies also improved macroeconomic outcomes. We assess the recent debate on the empirical evidence and discuss central bank assessments of UMP. Despite qualified successes, we recommend that UMP be reserved for crises and/or when the zero bound constrains conventional monetary policy. (JEL E31, E43, E44, E52, E58, G12, G21)

countries to provide additional arms to Ukraine and impose serious sanctions on Russia, including a removal of Russian financial institutions from the SWIFT financial messaging network and bans on Russian seaborne oil exports.1 In response to these sanctions and threats of an energy price cap or tariffs on Russian oil and gas exports, Russia slowed and sometimes stopped natural gas exports to countries of the European Union (EU) and threatened to end them entirely.2 Most recently, the Nord Stream 1 and 2 pipelines appear to have been sabotaged, which has shut down the flow of Russian gas to northern Europe. A continued shutdown would be a potentially serious problem, especially during the winter. Natural gas can’t be easily replaced with other forms of energy, at least for some years. The most economical way to ship natural gas is A Shutoff of Russian Natural Gas

This article extends the work of Fawley and Neely (2013) to describe how major central banks have evolved unconventional monetary policies to encourage real activity and maintain stable inflation rates from 2013 through 2019. By 2013, central banks were moving from lump-sum asset purchase programs to open-ended asset purchase programs, which are conditioned on economic conditions, careful communication strategies, bank lending programs with incentives, and negative interest rates. This article reviews how central banks tailored their unconventional monetary methods to their various challenges and the structures of their respective economies.

Cohen, Diether, and Malloy (Journal of Finance, 2007), find that shifts in the demand curve predict negative stock returns.We use their approach to examine changes in supply and demand at the time of FOMC announcements.We show that shifts in the demand for borrowing Treasuries and agencies predict quantitative easing.A reduction in the quantity demanded at all points along the demand curve predicts expansionary quantitative easing announcements.

Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, Carhart’s 4-factor model, the C-CAPM, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) carry-trade factor model, and models including macroeconomic factors, and foreign exchange volatility, skewness and liquidity, to explain these technical trading returns. No model plausibly accounts for much of the technical profitability. This failure implicitly supports non-risk based explanations such as adaptive markets.

We review the macroeconomic performance during the Global Financial Crisis and subsequent economic expansion, as well as the challenges in the pursuit of the Federal Reserve's dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.

This paper studies the Great Inflation in Canada, Australia, and New Zealand.Newspaper coverage and policymakers' statements are used to analyze the views on the inflation process that led to the 1970s macroeconomic policies, and the different movement in each country away from 1970s views.I argue that to understand the course of policy in each country, it is crucial to use the monetary policy neglect hypothesis, which claims that the Great Inflation occurred because policymakers delegated inflation control to nonmonetary devices.This hypothesis helps explain why, unlike Canada, Australia and New Zealand continued to suffer high inflation in the mid-1980s.The delayed disinflation in these countries reflected the continuing importance accorded to nonmonetary views of inflation.

Although transitory factors have largely driven the recent rise in inflation, expansionary policy to relieve unusual economic conditions also played a role.

All the announced MBS purchases are designed to provide liquidity and facilitate trading of agency MBS during a period of disruption associated with the coronavirus.

Fed policy appears to have assisted the corporate credit market during a period of unusually high risk and fire-sale prices.

T he global Financial Crisis of 2007-09 sprang from very different underlying causes from the recent COVID-19-related financial market turmoil.In both cases, central banks acted swiftly to maintain financial stability and ease monetary policy; but their recent actions have often surpassed their responses to the previous crisis.This essay summarizes the recent coronavirus-related policy reactions of the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BOE), and the Bank of Japan (BOJ).The spreading coronavirus has disrupted business activity and created great uncertainty, which reduced asset prices around the world and prompted investors to sell risky assets and buy safer assets, such as Treasury securities.This was particularly true from March 9 to March 26, 2020, when financial market conditions did resemble those of late 2008.These sales of risky assets pushed those prices

Fed lending to foreign central banks for them to provide emergency lending aids the U.S. economy by stabilizing international financial markets.

This note examines the likely impact that reducing the interest on excess reserves (IOER) rate would have on short-term money market rates and money market functioning, including possible implications for money market funds. 2Three cases are examined: cutting the IOER rate to a level of about 10 basis points, reducing the rate to zero, and setting a negative IOER rate. 3 We assume that aggregate reserve levels will remain at exceptionally high levels and that discretionary open market operations are not otherwise employed to influence the level of short-term money market rates.Overall, we would anticipate that cutting the IOER rate by 15 basis points, to a level of 10 basis points, would reduce overnight money market rates by a somewhat lesser amount, likely leaving them in a range centered between 5 and 10 basis points.The greatest potential impacts on financial market structure and functioning might be expected to arise through the effects of lower money market rates on money market funds (MMFs), although on balance we would not anticipate significant disruptions in this case.However, predicting these effects becomes progressively more challenging for levels of the IOER set closer to zero, and uncertainty is compounded by the possible impacts of recent regulatory changes for money market funds.

C redit markets typically require large-value loans and a way to mitigate risk.Loans for vehicles, credit cards, or student debt tend to be of relatively low value, however, and a single loan itself is individually risky as borrowers may be unable or unwilling to repay the loan.So, until the mid-1980s, these characteristics hindered the development of markets for this sort of credit and also made that credit fairly costly compared with the rates for corporate debt or even mortgages.The development of assetbacked securities (ABSs) in the mid-1980s solved many of these problems and contributed to the great growth of credit to individuals in the past 50 years or so.An ABS is a structured security whose owner receives coupon and principal payments from the repayment of loans from one of a variety of markets, such as credit cards,