Hamza Bennani

The art of central banks' forward guidance at the zero lower bound

This paper proposes to assess the usefulness of central banks forward guidance since the start of the global economic crisis. Using a novel approach, the Wordscores methodology, we reveal that since 2009, central banks do provide a temporal guidance of their accommodative policy that can be relied on and expected. Central banks communication thus gives important insights to financial markets about the persistence of their unconventional measures and in particular about the occurrence of an exit strategy.

The Determinants of Disagreement between the FOMC and the Fed's Staff: New Insights Based on a Counterfactual Interest Rate

We examine the degree and sources of disagreement between the members of the Federal Open Market Committee (FOMC) and the Federal Reserves (Feds) staff about the appropriate policy rate for the period 1994-2011. For that purpose, we compute a recommended interest rate for the Feds staff based on its own Greenbook forecasts and a time-varying monetary policy rule a la Taylor (1993), and compare it with the actual target rate. First, we find that there has been persistent internal disagreement between FOMC members and the Feds staff about the appropriate policy rate. Second, we reveal that members with an occupational background in finance favor a relatively more hawkish monetary policy. In addition, a preference towards a tighter monetary policy is found under a Democratic President and during Alan Greenspans tenure as the Feds Chairman. Finally, higher oil prices, a low degree of uncertainty, and episodes of financial stability are also associated with higher interest rates as compared to the Fed staffs recommendation.

Measuring Monetary Policy Stress for Fed District Representatives

This study provides a measure of the degree of stress that exists among Fed districts in the US. Stress in a district is defined as the difference between the desired interest rate of its representative and the actual policy rate implemented by the FOMC. I find that the degree of stress reflects the stance of the US monetary policy, a positive stress level in the 1990s (which corresponds to a policy rate higher than the desired rate of FOMC members), and a negative stress level from the 2000s (which corresponds to a policy rate lower than the desired rate of FOMC members). However, the economic and financial crisis exacerbated the degree of stress measure, suggesting an increase in monetary policy uncertainty among FOMC members from that time.

FOMC Members’ Incentives to Disagree: Regional Motives and Background Influences

We study determinants of individual FOMC members disagreement with the decided policy rate. Utilizing a novel dataset of macroeconomic indicators for the Fed districts and preferences revealed by FOMC members in the transcripts, we construct individual reaction functions for each member for the period 1994-2008. Then, we explain the gap between each member’s preferred rate and the adopted policy rate by individual background characteristics. First, we find that FOMC members tend to react to regional economic conditions, in particular the unemployment rate. Second, that Professors, and individuals holding a master degree or issued from either private or public sector have a higher propensity to disagree on the dovish side during the meetings, while female members as well as governors nominated by a Democrat President tend to disagree on the hawkish side (as compared to the “reference†member, who is a male, PhD holder, Regional Bank President with experience in the financial sector). Moreover, we show that, under Ben Bernanke, in a period a large economic uncertainty, the propensity to disagree increased for all types of members.