Abstract: Central bank money provides utility by serving as means of exchange for virtually all transactions in the economy. Central banks issue reserves (money) to banks in exchange for assets such as government bonds. If additional reserves have value to a bank, an asset's degree of convertibility into reserves can affect its price. We show the existence of a government bond reserves convertibility premium, which tapers off at longer maturities. The degree of convertibility is priced, but heterogeneously so. Our findings have implications for our understanding of reserves, liquidity premia, the term structure of interest rates, and central bank collateral policy.
Abstract: We study how monetary policy affects financial risk premia. Unlike existing studies, we focus on the Federal Open Market Committee’s (FOMC’s) forward-looking policy stance, beyond the current announcement and macroeconomic forecasts, which we derive from the policymakers’ private deliberations. A more hawkish policymakers’ stance in the FOMC meeting predicts lower risk premia during the intermeeting period. This effect is not explained by the content of the FOMC statement and unfolds gradually after the announcement. We document the importance of intermeeting communication via speeches and minutes to show how communicating forward-looking stance is vital in managing policy-induced risk perceptions.
Discussant: Alex Hsu, Georgia Institute of Technology
Abstract: How can researchers identify monetary shocks and their causal impacts when (i)agents may possess subjective beliefs and (ii) monetary authorities manage currentand future interest rates (e.g., forward guidance)? Assuming rational expectationsor risk-neutrality trivially enables identification. Without those assumptions, iden-tification of monetary shocks from asset prices hinges on a “Long-Run Neutrality”condition, roughly meaning policy does not affect the compensation for permanentrisks. We construct a non-parametric test of the Long-Run Neutrality condition, re-lated to the literature on FOMC announcement effects, and argue that it is violatedin the data. Finally, we present some example models in which the Long-Run Neu-trality condition is violated, illustrating how this condition is generally distinct fromconventional notions of monetary neutrality.
Discussant: Andrea Tamoni, University of Notre Dame
