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86 R. Greenwood, S. G. Hanson, J. S. Rudolph, and L. H. Summers didn’t complain that Chairman Bernanke was making U.S. debt somehow riskier by taking duration out of the market. I have described the problems with the authors’ plan, but suggested no alternative. As Geithner likes to say, “Plan beats no plan.” So is there an alternative plan that might achieve some of the authors’ goals? One possibility would be for the Treasury to follow more predictable policies in debt management . It might be straightforward for the Treasury to adopt policies that do no harm in extraordinary circumstances. For example, Treasury could commit to not lengthening the maturity of debt during or immediately after a crisis. As long as market participants trusted that the Treasury would eventually return to normal operating procedures, the imperative to do so immediately would be relaxed. Much as the central bank benefits from anchored inflation expectations, if market perceptions about the weighted average maturity of the debt were anchored, then the need to achieve them quickly— and potentially do damage or run at cross-purposes with monetary-policy easing—would diminish. In essence, policy reforms need not go as far as a compact between the Treasury and Fed in order to generate better outcomes. In conclusion, Greenwood, Hanson, Rudolph, and Summers tackle important questions. Their chapter surfaces the key issues and offers some policy prescriptions for the failures they see. In particular, the Treasury and the Fed should cooperate on debt management based on the overall national interest. But generals always fight the last war, so while it may seem like Treasury–Fed aggregate demand management is a clever idea, we’ve tried it in the past and it has been responsible for some of our worst monetary policy mistakes. It would be truly dangerous for the Fed to sacrifice its independence in order to get some perceived additional bang-for-the-buck in certain situations. References Bauer, Michael D., and Christopher J. Neely. 2014. “International Channels of the Fed’s Unconventional Monetary Policy,” Working Paper 2012-028 (Federal Reserve Bank of St. Louis). Bauer, Michael D., and Glenn D. Rudebusch. 2014. “The Signaling Channel for Federal Reserve Bond Purchases.” International Journal of Central Banking 10, no. 3: 233–89. Bernanke, Ben S. 2002. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” remarks before the National Economists Club, Washington, D.C., November 21 ( ———. 2003. “Some Thoughts on Monetary Policy in Japan,” remarks before the Japan Society of Monetary Economics, Tokyo, Japan, May 31 (www.federal Blommestein, H. J., and P. Turner. 2012. “Interactions between Sovereign Debt Management and Monetary Policy under Fiscal Dominance and Financial Instability,” OECD Working Papers on Sovereign Borrowing and Public Debt Management 3 (Paris: Organization for Economic Cooperation and Development). Bremner, Robert P. 2004. Chairman of the Fed. Yale University Press. Chandler, Lester V. 1966. The Economics of Money and Banking. New York: Harper & Row. Cochrane, John H. 2014. “Monetary Policy with Interest on Reserves,” mimeo, September. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack. 2011. “LargeScale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York Staff Report 441, March. Gagnon, Joseph, and Brian Sack. 2014. “Monetary Policy with Abundant Liquidity : A New Operating Framework for the Fed,” Policy Brief PB 14-4 (Washington , D.C.: Peterson Institute for International Economics). Garbade, Kenneth D. 2007. “The Emergence of ‘Regular and Predictable’ as a Treasury Debt Management Strategy.” Federal Reserve Bank of New York, Economic Policy Review 13, no. 1 (March): 53–71. Glick, R., and S. Leduc. 2013. “Unconventional Monetary Policy and the Dollar,” FRBSF Economic Letter 2013-09 (Federal Reserve Bank of San Francisco). Greenwood, Robin, Samuel G. Hanson, and Gordon Liao. 2014. “Price Dynamics in Partially Segmented Markets,” unpublished working paper. Greenwood, Robin, Samuel G. Hanson, and Jeremy C. Stein. 2015. “A Comparative Advantage Approach to Government Debt Maturity.” Journal of Finance 70: 1683–1722. Greenwood, Robin, and Dimitri Vayanos. 2014. “Bond Supply and Excess Bond Returns.” Review of Financial Studies 27, no. 3 (March): 663–713. Hanson, Samuel G. 2014. “Mortgage Convexity.” Journal of Financial Economics 113, no. 2 (August): 270–99. Hanson, Samuel G., and Jeremy C. Stein. 2015. “Monetary Policy and Long-Term Real Rates.” Journal of Financial Economics 115: 429–448. Hetzel, Robert L., and Ralph F. Leach. 2001. “The Treasury–Fed Accord: A New Narrative Account.” Federal Reserve Bank of...


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