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Monetary Policy Stance Is Tighter than Federal Funds Rate

Author

Listed:
  • Jason Choi
  • Taeyoung Doh
  • Andrew Foerster
  • Zinnia Martinez

Abstract

The Federal Reserve’s use of forward guidance and balance sheet policy means that monetary policy consists of more than changing the federal funds rate target. A proxy federal funds rate that incorporates data from financial markets can help assess the broader stance of monetary policy. This proxy measure shows that, since late 2021, monetary policy has been substantially tighter than the federal funds rate indicates. Tightening financial conditions are similar to what would be expected if the funds rate had exceeded 5¼% by September 2022.

Suggested Citation

  • Jason Choi & Taeyoung Doh & Andrew Foerster & Zinnia Martinez, 2022. "Monetary Policy Stance Is Tighter than Federal Funds Rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(30), pages 1-5, November.
    • Handle: RePEc:fip:fedfel:94991
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    References listed on IDEAS

    as
    1. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    2. Krippner, Leo, 2013. "Measuring the stance of monetary policy in zero lower bound environments," Economics Letters, Elsevier, vol. 118(1), pages 135-138.
    3. Marco J. Lombardi & Feng Zhu, 2018. "A Shadow Policy Rate to Calibrate U.S. Monetary Policy at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 14(5), pages 305-346, December.
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    Cited by:

    1. Simon H. Kwan & Louis Liu, 2022. "Financial Market Conditions during Monetary Tightening," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(03), pages 1-6, February.
    2. Camilla Lupiani, 2024. "Taylor Rule and Shadow Rates: theory and empirical analysis," BAFFI CAREFIN Working Papers 24218, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Ahmed, Rashad & Aizenman, Joshua & Saadaoui, Jamel & Uddin, Gazi Salah, 2023. "On the effectiveness of foreign exchange reserves during the 2021-22 U.S. monetary tightening cycle," Economics Letters, Elsevier, vol. 233(C).
    4. Mary C. Daly, 2023. "Forward-Looking Policy in a Real-Time World," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(08), pages 1-8, March.
    5. Andrew Foerster, 2023. "The Evolution of Disagreement in the Dot Plot," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(21), pages 1-6, August.
    6. Taeyoung Doh & Andrew Foerster, 2022. "Have Lags in Monetary Policy Transmission Shortened?," Economic Bulletin, Federal Reserve Bank of Kansas City, issue December , pages 1-3, December.

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