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The Way People Talk About the Federal Reserve’s ‘Big’ Balance Sheet is All Wrong (Notes on Crisis, 7 min read) A large central bank balance sheet does not distort the functioning of the financial market, argues the director of research at the Modern Money Network, Nathan Tankus. One argument is that a significant part of the balance sheet comprises government securities.
Fed to Keep Rate Vol Based Leading to Higher Vols in Other Assets (Variant Perception, 2 min read) Earlier ‘yield capping’ by the Fed to reduce fixed income volatility led to other asset classes having higher vol. FX volatility surged due to excess liquidity, and equity volatility rose when yield curves were flatter.
Raising the Inflation Target: How Much Extra Room Does It Really Give? (Cleveland Fed, 29 page read) When prices adjust more frequently, the potency of monetary policy declines. This paper finds that raising the inflation target from 2% to 4% gives monetary authorities only 0.51-1.6pp extra room for monetary policy. Getting the full 2pp intended extra room requires raising the target to more than 4%.
Inflation Volatility in Small and Large Advanced Open Economies (ECB, 23 page read) Over the last two decades, when controlling for monetary policy activity, inflation volatility has been similar among countries. Indeed, contrary to expectations, point-targeting central banks are only weakly associated with higher inflation swings. These results imply that small and large advanced open economy countries are exposed to global fluctuations to a comparable extent.