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Daniel L. Thornton Vice President and Economic Adviser

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Speeches

"Economic and Financial Outlook, 2002," Remarks made at the 38th Annual Meeting of the Missouri Valley Economics Association. February 2002

"Economic Outlook—2002," Meeting of the Paducah Kentucky Chamber of Commerce. December 2001

Working Papers

2009-037A "The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks" - August 2009
Abstract | Full Text (PDF 307K )

2009-009A "Revisiting the Predictability of Bond Risk Premia" - March 2009
with Giorgio Valente
Abstract | Full Text (PDF 265K )

2009-002A "Resolving the Unbiasedness Puzzle in the Foreign Exchange Market" - January 2009
Abstract | Full Text (PDF 168K )

2008-011A "Monetary Policy: Why Money Matters and Interest Rates Don't" - May 2008
Abstract | Full Text (PDF 585K )

2007-039C "The Unusual Behavior of the Federal Funds and 10-Year Treasury Rates: A Conundrum or Goodhart's Law?" - September 2007, Revised August 2009
Abstract | Full Text (PDF 436K )

2007-014A "Resolving the Unbiasedness and Forward Premium Puzzles" - March 2007
Abstract | Full Text (PDF 755K )

2007-001B "The Daily and Policy-Relevant Liquidity Effects" - January 2007, Revised November 2007
Abstract | Full Text (PDF 348K )

2006-020A "The Daily Liquidity Effect" - April 2006
Abstract | Full Text (PDF 1.4M )

2005-032A "A New Federal Funds Rate Target Series: September 27, 1982 - December 31, 1993" - May 2005
Abstract | Full Text (PDF 578K ) | The New Federal Funds Rate Target Series

2004-013A "A Dynamic Factor Analysis of the Response of U. S. Interest Rates to News" - July 2004
with Marco Lippi
Abstract | Full Text (PDF 1.0M)

2004-010A "Predictions of Short-Term Rates and the Expectations Hypothesis of the Term Structure of Interest Rates" - June 2004
Abstract | Full Text (PDF 379K )

2002-028B "Monetary Policy Transparency: Transparent about What?" - November 2002, Revised May 2003
Published: The Manchester School, September 2003, pp. 478-97.
Abstract | Full Text (PDF 315K)

1997-004A "Do Bank Loan Rates Exhibit a Countercyclical Mark-up?"
with Michael J. Dueker
Abstract | Full Text (PDF 1.5M)

1996-002A "Identifying the Liquidity Effect: the Case of Nonborrowed Reserves"
Shortened version is published in Journal of Banking and Finance, September 2001, 25(9), pp. 1717-39, under the title "The Federal Reserve's Operating Procedures, Nonborrowed Reserves, Borrowed Reserves and the Liquidity Effect"
Abstract | Full Text (PDF 2.4M)

1996-001A "Discount Rate Policies of Five Federal Reserve Chairmen"
Abstract | Full Text (PDF 1.8M)

1994-017A "Asymmetry in the Prime Rate and Firms' Preference for Internal Finance"
with Michael J. Dueker
Abstract | Full Text (PDF 1.4M)

1992-003A "The Market's Reaction to Discount Changes: What's Behind the Announcement Effect?"
Abstract | Full Text (PDF 2.0M)

Notify me of updates to working papers by Daniel L. Thornton

Publications

"How Did We Get to Inflation Targeting and Where Do We Go Now? A Perspective From the U.S. Experience"
FORTHCOMING in David Cobham, Øyvind Eitrheim, Stefan Gerlach and Jan Qvigstad, eds., Inflation Targeting Twenty Years On: Past Lessons and Future Prospects, Cambridge University Press.
Abstract | Full Text (PDF 241K )

"The Expectation Hypothesis of the Term Structure of Very Short-Term Rates: Statistical Tests and Economic Value"
with Pasquale Della Corte and Lucio Sarno
Journal of Financial Economics, July 2008, 89(1), pp. 158-74.

"What's Unique About the Federal Funds Rate? Evidence from the Spectral Perspective"
with Lucio Sarno and Yi Wen
Oxford Bulletin of Economics and Statistics, April 2007, 69(2), pp. 293-319.

"The Empirical Failure of the Expectations Hypothesis of the Term Structure of Bond Yields"
with Lucio Sarno and Giorgio Valente
Journal of Financial and Quantitative Analysis, March 2007, 42(1), pp. 81-100.

"When Did the FOMC Begin Targeting the Federal Funds Rate? What the Verbatim Transcripts Tell Us"
Journal of Money, Credit and Banking, December 2006, 38(8), pp. 2039-71.

"Tests of the Expectations Hypothesis: Resolving the Campbell-Shiller Paradox"
Journal of Money, Credit and Banking, March 2006, 38(2), pp. 511-42.

"Tests of the Expectations Hypothesis: Resolving the Anomalies When the Short-Term Rate Is the Federal Funds Rate"
Journal of Banking and Finance, October 2005, 29(10), pp. 2541-56.

"Federal Funds Rate Prediction"
with Lucio Sarno and Giorgio Valente
Journal of Money, Credit and Banking, June 2005, 37(3), pp. 449-71.

"A Note On The Expectations Hypothesis At The Founding Of The Fed"
with Clemens J. M. Kool
Journal of Banking and Finance, December 2004, 28(12), pp. 3055-68.

"Forecasting the Treasury's Balance at the Fed"
Journal of Forecasting, August 2004, 23(5), pp. 357-71.

"Testing the Expectations Hypothesis: Some New Evidence for Japan"
Bank of Japan Monetary and Economic Studies, May 2004, 22(2), pp. 45-69.

"The Fed and Short-term Interest Rates: Is It Open Market Operations, Open Mouth or Interest Rate Smoothing"
Journal of Banking and Finance, March 2004, 28(3), pp.475-98.

"Monetary Policy Transparency: Transparent about What?"
The Manchester School, September 2003, 71(5), pp. 478-97.

"The Dynamic Relationship Between the Federal Funds Rate and the Treasury Bill Rate: An Empirical Investigation"
with Lucio Sarno
Journal of Banking and Finance, June 2003, 27(6), pp. 1079-110.

"The Federal Reserve's Operating Procedures, Nonborrowed Reserves, Borrowed Reserves and the Liquidity Effect"
Journal of Banking and Finance, September 2001, 25(9), pp. 1717-39

"Lifting the Veil of Secrecy From Monetary Policy: Evidence From the Fed's Early Discount Rate Policy"
Journal of Money, Credit and Banking, May 2000, 32(2), pp. 155-67.

"The Information Content of Discount Rate Announcements: What is Behind the Announcement Effect?"
Journal of Banking and Finance, January 1998, 22(1), pp. 83-108.

"The Information Content of the Federal Funds Rate: Is It Unique?"
with M. Garfinkel
Journal of Money, Credit and Banking, August 1995, 27(3), pp. 838-47.

"Why Do T-Bill Rates React to Discount Rate Changes?"
Journal of Money, Credit and Banking, November 1994, 26(4), pp. 839-50.

"Comments on Federal Reserve Operating Procedures and Institutional Change"
Marvin S. Goodfriend and David H. Small, eds., Operating Procedures and the Conduct of Monetary Policy Conference Proceedings,
Financial and Economics Discussion Series, Working Studies, March 1993, 1(2).

"Financial Innovation: Causes and Consequences"
with C. Stone
Kevin Dowd and Mervyn K. Lewis, eds., Current Issues in Monetary Analysis and Policy, MacMillan Publishers, 1991.
Financial and Monetary Economics, 1992, pp. 81-109.

"Why Do Market Interest Rates Respond to Money Announcements?"
Journal of International Financial Markets, Institutions and Money, 1991, 1(1), pp. 33-60.

"Modeling the Demand for Money in Large Industrial Countries Buffer Stock and Error Correction Approaches: A Discussion"
Journal of Policy Modeling, Summer 1990, pp. 463-67.

"The Effect of Unanticipated Money on the Money and Foreign Exchange Markets"
Journal of International Money and Finance, December 1989, 8(4), pp. 573-87.

"On the Informational Content of Spot and Forward Exchange Rates"
with K. Alec Chrystal
Journal of International Money and Finance, September 1988, 7(3), pp. 321-30.

"A Note on the Efficiency of the Cochrane-Orcutt Estimator of the AR(1) Regression Model"
Journal of Econometrics, November 1987, 36(3), pp. 369-76.

"Price Expectations and the Demand for Money: A Comment"
with R. W. Hafer
Review of Economics and Statistics, August 1986, 68(3), pp. 539-42.

"Monetary Anticipations and the Demand for Money: Reply"
with Jack Carr and Michael R. Darby
Journal of Monetary Economics, September 1985, 16(2), pp. 251-57.

"A Note on Almon's Endpoint Constraints"
with Dallas S. Batten
Communications in Statistics: Simulation and Computation, 1985, pp. 683-90.

"The Andersen-Jordan Equation, Revisited"
with Dallas S. Batten
Journal of Macroeconomics, Summer 1985, 7(3), pp. 419-32.

"On the Appropriate Interest Rate and Scale Variable in Money Demand: Results From Non-Nested Tests"
Applied Economics, August 1985, 17(4), pp. 735-44.

"Lag Length Selection and Tests of Granger Causality Between Money and Income"
with Dallas S. Batten
Journal of Money, Credit and Banking, May 1985, 17(2), pp. 164-78.

"Discount Rate Changes and the Foreign Exchange Market"
with Dallas S. Batten
Journal of International Money and Finance, December 1984, 3(3), pp. 279-92.

"The Government Budget Constraint with Endogenous Money"
Journal of Macroeconomics, Winter 1984, 6(1), pp. 57-67.

"Bank Money, Net Wealth and the Real-Balance Effect"
Journal of Macroeconomics, Winter 1983, 5(1), pp. 105-17.

"The Long-Run and Short-Run Demand for Money: Additional Evidence"
Journal of Macroeconomics, Summer 1982, 4(3), pp. 325-38.

"Maximum Likelihood Estimates of a Partial Adjustment-Adaptive Expectations Model of the Demand for Money"
The Review of Economics and Statistics, May 1982, 64(2), pp. 325-29.

"Bank Money as Net Wealth: A Comment"
Atlantic Economic Journal, December 1981, 9(4), pp. 43-5.

"The Empirical Significance of the Real Balance Effect"
with Paul E. Smith
Journal of Macroeconomics, Summer 1980, 2(3), pp. 213-32.

"In-Service Education and its Effects on Secondary Students: A New Approach"
with George M. Vredeveld
Journal of Economic Education, Spring 1977, 8(2), pp. 93-9.

Review Articles

"The Fed, Liquidity, and Credit Allocation"
Federal Reserve Bank of St. Louis Review, January/February 2009, 91(1), pp. 13-21.

"A Primer on the Mortgage Market and Mortgage Finance"
with Daniel J. McDonald
Federal Reserve Bank of St. Louis Review, January/February 2008, 90(1), pp. 31-45.

"Open Market Operations and the Federal Funds Rate"
Federal Reserve Bank of St. Louis Review, November/December 2007, 89(6), pp. 549-70.
Also printed in D.G. Mayes and J. Toporowski, eds., Open Market Operations and Financial Markets,
Routledge International Studies in Money and Banking, London, 2007, pp. 178-202.

"The Lower and Upper Bounds of the Federal Open Market Committee's Long-Run Inflation Objective"
Federal Reserve Bank of St. Louis Review, May/June 2007, 89(3), pp. 183-93.

"Testing the Expectations Hypothesis: Some New Evidence for Japan"
Federal Reserve Bank of St. Louis Review, September/ October 2004, 86(5), pp. 21-39.

"The Efficient Market Hypothesis and Identification in Structural VARs"
with Lucio Sarno
Federal Reserve Bank of St. Louis Review, January/February 2004, 86(1), pp. 47-60.

"The FOMC's Balance of Risks Statement and Market Expectations of Policy Actions"
with Robert H. Rasche
Federal Reserve Bank of St. Louis Review, September/October 2002, 84(5), pp. 37-50.

"Market Anticipations of Monetary Policy Actions"
with William Poole and Robert H. Rasche
Federal Reserve Bank of St. Louis Review, July/August 2002, 84(4), pp. 65-94.

"Identifying the Liquidity Effect at the Daily Frequency"
Federal Reserve Bank of St. Louis Review, July/August 2001, 83(4), pp. 59-82.

"The Expected Federal Budget Surplus: How much Confidence Should the Public and Policy Makers Place in the Projections?"
with K. L. Kliesen
Federal Reserve Bank of St. Louis Review, March/April 2001, 83(2), pp. 11-24.

"A History of the Asymmetric Policy Directive"
with D. C. Wheelock
Federal Reserve Bank of St. Louis Review, September/October 2000, 82(5), pp. 1-16.

"Money in a Theory of Exchange"
Federal Reserve Bank of St. Louis Review, January/February 2000, 82(1), pp. 35-62.

"Tests of the Market's Reaction to Federal Funds Rate Target Changes"
Federal Reserve Bank of St. Louis Review, November/December 1998, 80(6), pp. 25-36.

"Using the Federal Funds Futures Market to Predict Federal Reserve Actions"
with J.C. Robertson
Federal Reserve Bank of St. Louis Review, November/December 1997, 79(6), pp. 45-53.

"Does the Fed's New Policy of Immediate Disclosure Affect the Market?"
Federal Reserve Bank of St. Louis Review, November/December 1996, 78(6), pp. 77-88.

"The Costs and Benefits of Price Stability: An Assessment of Howitt's Rule"
Federal Reserve Bank of St. Louis Review, March/April 1996, 78(2), pp. 23-28.

"Is There a Case for "Moderate" Inflation?"
with A. L. Marty
Federal Reserve Bank of St. Louis Review, July/August 1995, 77(4), pp. 27-37.

"Financial Innovation and Deregulation and the 'Credit View' of Monetary Policy"
Federal Reserve Bank of St. Louis Review, January/February 1994, 76(1), pp. 31-49.

"An Extended Series of Divisia Monetary Aggregates"
with Piyu Yue
Federal Reserve Bank of St. Louis Review, November/December 1992, 74(6), pp. 35-52.

"Targeting M2: The Issue of Monetary Control"
Federal Reserve Bank of St. Louis Review, July/August 1992, 74(4), pp. 23-35.

"Alternative Measures of the Monetary Base: What Are the Differences and Are They Important?"
with Michelle R. Garfinkel
Federal Reserve Bank of St. Louis Review, November/December 1991, 73(6), pp. 19-35.

"The Multiplier Approach to the Money Supply Process: A Precautionary Note"
with Michelle R. Garfinkel
Federal Reserve Bank of St. Louis Review, July/August 1991, 73(4), pp. 47-64.

"A Primer on Cointegration with an Application to Money and Income"
with David A. Dickey and Dennis W. Jansen
Federal Reserve Bank of St. Louis Review, March/April 1991, 73(2), pp. 58-78
Reprinted in B. Bhaskara Rao, ed., Cointegration for the Applied Economist, St. Martin's Press, 1994 and Omar R. Hamouda, ed., Foundations of Probability, Econometrics and Economic Games, Edward Elgar, 1996.

"Do Government Deficits Matter?"
Federal Reserve Bank of St. Louis Review, September/October 1990, 72(5), pp. 25-39.

"The Link Between M1 and the Monetary Base in the 1980s"
with Michelle R. Garfinkel
Federal Reserve Bank of St. Louis Review, September/October 1989, 71(5), pp. 35-52.

"Tests of Covered Interest Rate Parity"
Federal Reserve Bank of St. Louis Review, July/August 1989, 71(4), pp. 55-66.

"The Macroeconomic Effects of Deficit Spending: A Review"
with K. Alec Chrystal
Federal Reserve Bank of St. Louis Review, November/December 1988, 70(6), pp. 48-60.

"The Effect of Monetary Policy on Short-Term Interest Rates"
Federal Reserve Bank of St. Louis Review,May/June 1988, 70(3), pp. 53-72.

"The Borrowed-Reserves Operating Procedure: Theory and Evidence"
Federal Reserve Bank of St. Louis Review, January/February 1988, 70(1), pp. 30-54.

"Solving the 1980's Velocity Puzzle: A Progress Report"
with Courtenay C. Stone
Federal Reserve Bank of St. Louis Review, August/September 1987, 69(7), pp. 5-23.

"The Monetary-Fiscal Policy Debate and the Andersen-Jordan Equation"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, October 1986, 68(8), pp. 9-17.

"The Discount Rate and Market Interest Rates: Theory and Evidence"
Federal Reserve Bank of St. Louis Review, August/September 1986, 68(7), pp. 5-21.

"The Cost of Checkable Deposits in the United States"
with Kenneth C. Carraro
Federal Reserve Bank of St. Louis Review, April 1986, 68(4), pp. 19-27.

"Are Weighted Monetary Aggregates Better Than Simple-Sum M1?"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, June/July 1985, 67(6), pp. 29-40.

"Money Demand Dynamics: Some New Evidence"
Federal Reserve Bank of St. Louis Review, March 1985, 67(3), pp. 14-23.

"The Discount Rate, Interest Rates and Foreign Exchange Rates: An Analysis with Daily Data"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, February 1985, 67(2), pp. 22-30.

"Monetizing the Debt"
Federal Reserve Bank of St. Louis Review, December 1984, 66(10), pp. 30-43.

"An Early Look at the Volatility of Money and Interest Rates Under CRR"
Federal Reserve Bank of St. Louis Review, October 1984, 66(8), pp. 26-32.

"How Robust Are the Policy Conclusions of the St. Louis Equation: Some Further Evidence"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, June/July 1984, 66(6), pp. 26-32.

"Why Does Velocity Matter?"
Federal Reserve Bank of St. Louis Review, December 1983, 65(10), pp. 5-13.

"Lagged and Contemporaneous Reserve Accounting: An Alternative View"
Federal Reserve Bank of St. Louis Review, November 1983, 65(9), pp. 26-33.

"M1 or M2: Which is the Better Monetary Target"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, June/July 1983, 65(6), pp 36-42.

"The FOMC in 1982: De-emphasizing M1"
Federal Reserve Bank of St. Louis Review, June/July 1983, 65(6), pp. 26-35.

"Polynomial Distributed Lags and the Estimation of the St. Louis Equation"
with Dallas S. Batten
Federal Reserve Bank of St. Louis Review, April 1983, 65(4), pp. 13-25.

"Simple Analytics of the Money Supply Process and Monetary Control"
Federal Reserve Bank of St. Louis Review, October 1982, 64(8), pp. 23-39.

"The Discount Rate and Market Interest Rates: What's the Connection?"
Federal Reserve Bank of St. Louis Review, June/July 1982, 64(6), pp. 3-14.

"The FOMC in 1981: Monetary Control in a Changing Financial Environment"
Federal Reserve Bank of St. Louis Review, April 1982, 64(4), pp. 3-22.

The Regional Economist Articles

"Reader Exchange: In response to recent financial market turmoil, the Federal Reserve has introduced an alphabet soup of programs (TAF, TSLF, PDCF, etc.). What are these, and how do they work?"
Federal Reserve Bank of St. Louis The Regional Economist, July 2008, p. 27.

Economic Synopses Articles

"Would Quantitative Easing Sooner Have Tempered the Financial Crisis and Economic Recession?"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 37.

"What Caused Long-Term Rates to Rise?"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 32.

"Negating the Inflation Potential of the Fed's Lending Programs"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 30.

"The Effect of the Fed’s Purchase of Long-Term Treasuries on the Yield Curve"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 25.

"What the Libor-OIS Spread Says"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 24.

"A Perspective on the Current Recession: It's Not the 'Worst Case' Yet"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 2.

"Is There Less Agreement About Inflation?"
Federal Reserve Bank of St. Louis Economic Synopses, 2009, No. 1.

"Walter Bagehot, the Discount Window, and TAF"
Federal Reserve Bank of St. Louis Economic Synopses, 2008, No. 27.

Monetary Trends Cover Pages

"Subprime Side Effects in the Federal Funds Market"
Federal Reserve Bank of St. Louis Monetary Trends, October 2007.

"Measure for Measure: Headline versus Core Inflation"
Federal Reserve Bank of St. Louis Monetary Trends, September 2007.

"The Federal Funds and Long-Term Rates"
Federal Reserve Bank of St. Louis Monetary Trends, May 2007.

"The Fed's Inflation Objective"
Federal Reserve Bank of St. Louis Monetary Trends, July 2006.

""Measured Pace" in the Conduct of Monetary Policy"
Federal Reserve Bank of St. Louis Monetary Trends, March 2006.

"Greenspan's Unconventional View of the Long-Run Inflation/Output Trade-off"
with Robert H. Rasche
Federal Reserve Bank of St. Louis Monetary Trends, January 2006.

"The Monetary Policy Transmission Mechanism?"
Federal Reserve Bank of St. Louis Monetary Trends, September 2005.

"The FOMC's "Considerable Period""
with Richard G. Anderson
Federal Reserve Bank of St. Louis Monetary Trends, February 2004.

"Making Monetary Policy More Transparent"
Federal Reserve Bank of St. Louis Monetary Trends, January 2004.

"How Effective Is Monetary Policy?"
Federal Reserve Bank of St. Louis Monetary Trends, January 2003.

"Predictability and Effectiveness of Monetary Policy"
Federal Reserve Bank of St. Louis Monetary Trends, July 2003.

"Alternative Policy Weapons?"
Federal Reserve Bank of St. Louis Monetary Trends, August 2003.

"Withering Dissents"
Federal Reserve Bank of St. Louis Monetary Trends, August 2002.

"The Codification of and FOMC Procedure"
Federal Reserve Bank of St. Louis Monetary Trends, March 2001.

"What Accounts for the Reduced Frequency of Fed Actions?"
Federal Reserve Bank of St. Louis Monetary Trends, April 2001.

"Interest Rate Targets Abandoned"
with David Wheelock
Federal Reserve Bank of St. Louis Monetary Trends, June 2001.

"The Monetary/Fiscal Policy Debate: A Controlled Experiment"
with Robert H. Rasche
Federal Reserve Bank of St. Louis Monetary Trends, October 2001.

"An Experiment is Underway"
Federal Reserve Bank of St. Louis Monetary Trends, February 2000.

"The Golden Dollar: The Early Evidence"
Federal Reserve Bank of St. Louis Monetary Trends, December 2001.

"Nominal Interest Rates: Less Than Zero?"
Federal Reserve Bank of St. Louis Monetary Trends, January 1999.

"The Funds Rate Target and Interest Rates"
Federal Reserve Bank of St. Louis Monetary Trends, September 1999.

"The Importance of an Asymmetric Directive"
Federal Reserve Bank of St. Louis Monetary Trends, August 1998.

National Economic Trends Cover Pages

"Social Security, Saving, and Wealth Accumulation"
Federal Reserve Bank of St. Louis National Economic Trends, May 2005.

"Public Officials and Job Creation"
with Thomas A. Garrett
Federal Reserve Bank of St. Louis National Economic Trends, September 2004.

"Does a Mild Recession Imply a Weak Recovery?"
with Kevin L. Kliesen
Federal Reserve Bank of St. Louis National Economic Trends, March 2000.

"The Exceptional 1990s"
with Cletus Coughlin,
Federal Reserve Bank of St. Louis National Economic Trends, March 2000.

Education

Degree	Institution	Major	Date
Ph.D.	University of Missouri-Columbia	Economics	1976
M.S.	Arizona State University	Economics	1969
B.A.	Parsons College	Economics	1967