Words which travel the world: global spillovers of the Fed information effect

Marco Pinchetti and Andrzej Szczepaniak

It is certainly not a mystery that the Fed’s monetary policy is of great importance for financial markets and the global economy. However, in a recently published Staff Working Paper, we show that the Fed’s monetary policy measures are not the only valuable piece of information contained in the Fed’s announcements. Changes in the Fed’s economic assessment drive investors’ risk behaviour and international capital allocation decisions. Through this channel, changes in Fed views can affect financial conditions and economic activity in the rest of the world, independent of policy actions.

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A cat, a hat and a simple measure of gobbledygook: How readable is your writing?

Jonathan Fullwood.

Sometimes the obvious questions are the hardest to answer. In this post I ask how much of what the Bank and the financial industry in general write can actually be read by a broad audience. Based on my findings, I suggest that both must try harder if claims of accessibility are to be meaningful.

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On the benefits of reducing uncertainty about policy

Riccardo M Masolo and Francesca Monti.

Newspapers and other media outlets regularly speculate about what the Bank of England might do in response to current economic conditions. Curiously, however, most of the models we use to carry out our economic and policy analysis completely disregard this type of uncertainty. Many of them consider how people would behave when uncertain about the state of the economy, yet everyone is assumed to know for sure the variables that the central bank will respond to, how aggressively and why. To try and fill this gap between the models we typically use and the reality we actually face, in our paper we explore the effects of Knightian uncertainty about the behaviour of the policymaker in an otherwise standard macro model. Continue reading “On the benefits of reducing uncertainty about policy” →