Economics Faculty Research Spotlight

The Federal Reserve Bank (Fed) recently announced plans to launch “Operation Twist” as an economyboosting initiative, and this decision spurred widespread debate. VSB Professor of Economics Victor Li, who has long been studying and analyzing the policies of the Fed, examined the numbers and penned an op-ed in favor of the policy. “Operation Twist” involves selling a large amount of short-term bonds in exchange for the same quantity of longer-term bonds. The objective of this measure is to reduce interest rates and offer consumers incentive to borrow and spend money. Li contends that “Operation Twist” would be beneficial to the economic recovery, explaining that downward pressure on the long-term mortgage rates would reinvigorate the sluggish housing market.

Additionally, a reinvestment in securities would actually have minimal impact on the Fed’s overall balance sheet. This strategy also would benefit market investors, who would see a greater return on their long-term bonds from the boost in prices. While other experts argue that policymakers should focus singularly on the unemployment rate rather than the Fed’s mandate of price stability and low inflation, Li maintains that this action would be inadvisable.

Li’s research has appeared in the Journal of Monetary Economics, the Journal of Money, Credit, and Banking, and the Journal of Economic Dynamics and Control. Li previously worked with Ben Bernanke, chairman of the Federal Reserve, while both were at Princeton, and he also was a visiting scholar at the Federal Reserve Bank of St. Louis and a senior economist at the Federal Reserve Bank of Atlanta. Li has been quoted as an expert on the Federal Reserve by a number of media outlets, including The Philadelphia Inquirer, Bloomberg, and The New York Times.

Faculty Spotlight

Twisting The Economy Around
How to stimulate the troublesome economy has been a source of contention for years.
Click here
to read more.