Center for Pacific Basin Studies

The Center for Pacific Basin Studies promotes cooperation among central banks in the Pacific Basin and provides insight into and analysis of economic policy issues affecting the region.

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Pacific Basin Notes

Occasional series of the FRBSF Economic Letter

How Quickly Do Prices Respond to Monetary Policy?

2024 – 10

| April 8, 2024

With inflation still above the Federal Reserve’s 2% objective, there is renewed interest in understanding how quickly federal funds rate hikes typically affect inflation. Beyond monetary policy’s well-known lagged effect on the economy overall, new analysis highlights that not all prices respond with the same strength or speed. Results suggest that inflation for the most responsive categories of goods and services has come down substantially from recent highs, likely due in part to more restrictive monetary policy. As a result, the contributions of these categories to overall inflation have fallen.

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Working Papers

Inflation Expectations, Liquidity Premia and Global Spillovers in Japanese Bond Markets

2024-12 | APRIL 2024

Jens H. E. Christensen and Mark M. Spiegel

We provide market-based estimates of Japanese inflation expectations using an arbitrage-free dynamic term structure model of nominal and real yields that accounts for liquidity premia and the deflation protection afforded by Japanese inflation-indexed bonds, known as JGBi’s. We find that JGBi liquidity premia exhibit significant variation, and even switch sign. Properly accounting for them significantly lowers the estimated value of the indexed bonds’ deflation protection and affects inflation risk premium estimates. After liquidity adjustment, long-term Japanese inflation expectations have remained relatively stable at levels modestly exceeding one percent during the pandemic period. We then utilize our estimated liquidity measure to confirm the existence of statistically significant and economically meaningful spillovers to the JGBi market from global bond market illiquidity, as proxied by periods of low U.S. Treasury market depth.

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2024 Pacific Basin Research – CALL FOR PAPERS

May 15, 2024
Federal Reserve Bank of San Francisco | San Francisco, CA

2023 Asia Economic Policy Conference: Global Linkages in a Post-Pandemic World

November 16 – November 17, 2023
Federal Reserve Bank of San Francisco | San Francisco, CA

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