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The Quantitative Macroeconomics and
Real Business Cycle Home Page

This is a collection of links to several resources about quantitative macroeconomics and especially real business cycle (RBC) theory on the World-Wide Web. RBC theory is now also commonly refered to as “Stochastic Dynamic General Equilibrium (SDGE)” theory, or simply “Dynamic General Equilibrium (DGE)” theory reflecting the recent uses of this methodology.


Society for Economic Dynamics

Contact Information:
Christian Zimmermann
SED Secretary
University of Connecticut
Department of Economics
341 Mansfield Road, U-1063
Storrs CT 06269-1063
Fax: (860) 486-4463

Submissions to RED Mini-Conference on “Sources of Business-Cycle Fluctuations”
The Review of Economic Dynamics is organizing a mini-conference on the sources of business-cycle fluctuations within the 2009 SED Meetings. Papers for the mini-conference are selected by Stephanie Schmitt-Grohé and Martín Uribe of Columbia University. Submissions to the mini-conference must be submitted simultaneously for possible publication in a special issue of the Review of Economic Dynamics. The deadline for submissions is February 15, 2009.

February 15, 2009. – submission deadline.

The organizers now welcome submissions from a broad range of topics concerning the sources of macroeconomic fluctuations. Topics of interest include but are not limited to (1) the role of anticipated shocks; (2) informational sources of business fluctuations ; (3) the importance of neutral versus sector-specific shocks; (4) volatility shocks and the business cycle. (5) monetary sources of business-cycle fluctuations; and (6) the econometric identification and estimation of business-cycle shocks.

To submit a paper to the miniconference, please log into conference maker here, upload your paper and abstract and make sure to select the area RED Miniconference. Next, proceed to the Review of Economic Dynamics submission website to submit the paper there as well. When you submit to the Review of Economic Dynamics, you must enclose a cover letter stating that the submission is intended for the RED Special Issue on “Sources of Business-Cycle Fluctuations”.

Remark: Papers submitted to the miniconference that do not make it onto the miniconference program will automatically be reconsidered for the overall SED program. It is therefore not necessary (and it is not possible) to submit the same paper twice in conference maker.

Istanbul (Turkey)
2 – 4 July 2009

Program Chairs:
Jesus Fernandez-Villaverde, Martin Schneider.

Program Committee.

Local Organizers:
Nezih Guner, Refet Gürkaynak, Selahattin Imrohoroglu, Gokce Kolasin, Kamil Yilmaz.

Plenary Speakers:
Matthew Jackson, Timothy Kehoe, Christopher Sims

Faculty of Economics and Business Administration, Bahçes,hir University


PREVIEW-Rome G7 pins hopes on Geithner, in shadow of G20
Tue Feb 10, 2009 2:34pm GMT

By Gavin Jones

ROME, Feb 10 (Reuters) – The launch of a new relationship with Washington is the best hope for something solid out of this weekend’s gathering of G7 financial leaders in Rome, with officials signalling little significant is likely to emerge on actual policy.

The Group of Seven meeting on Feb. 13-14 has been largely overshadowed by the broader Group of Twenty advanced and emerging nations which have the specific remit to tackle the global financial crisis and prevent a repetition.

With regulation and financial reform proposals in the hands of the Financial Stability Forum and the G20, the Rome meeting of finance ministers and central bankers is likely to focus on economic prospects and the dangers of state protectionism.

[ . . . ]

New U.S. Treasury Secretary Timothy Geithner will naturally be the main focus of attention, with the rest of the G7 hoping to see signs of a more multilateral approach after eight years of go-it-alone Republican rule they often found frustrating.

“The Bush administration tended to ignore international organisations, now things will have to be different,” a European G7 official said.

Stimulus plans, how to get banks lending again and what to do with their toxic assets are sure to be a key topic of discussion, but situations and ideas differ widely and the G7 is not considered the forum for any detailed common prescription.

Unlike in the past, the G7 — the United States, Japan, Germany, France, Britain, Italy and Canada — have not invited the largest emerging economies to join them, apparently because they will all be present at the G20 in England next month.

Russia, on the other hand, will be attending, along with the heads of the European Central Bank, the International Monetary Fund, the Organisation for Economic Co-operation and Development and other international bodies.

Financial Stability Forum chief Mario Draghi will address the G7 on Saturday and probably report on the state of intense negotiations over which new nations can join the body whose role in re-writing financial rules is being progressively upgraded.

Emerging economies are jostling for a seat on the FSF, which is attended by representatives of finance ministries, central banks and regulators, and seems likely to be transformed into a fully fledged institution with its own seat and secretariat.




(Reuters) – The Group of Seven countries meet in Rome on Friday, with attempts to move forward with regulatory reform agreed by the wider G20 in Washington last November high on the agenda.

Diplomats say the promise last year by global leaders of “rapid action” on tightening rules and oversight of financial markets has taken a backseat as governments focus on their uphill battle to combat growing recession.

But the G7 is the first of a series of top level gatherings to prepare the ground for a G20 summit in London on April 2, and officials hope that the meetings can make progress and begin to deliver on the ideas agreed last year.


Diplomats say the core scenario remains that the Financial Stability Forum, a body of central bankers, regulators and finance ministers, would propose new global standards such as on bank capital rules or regulating off exchange markets.

The International Monetary Fund would use its authority to ensure the standards are implemented at country level.


“Supervisors should collaborate to establish supervisory colleges for all major cross-border financial institutions.”


“Standard setters should set out strengthened capital requirements for banks’ structured credit and securitization activities.”

The EU has proposed tough rules on securitisation that would force banks to retain a slice of the products they sell in a bid to encourage higher underwriting standards. The United States has some concerns about how they would affect U.S. banks.

The Basel Committee of banking supervisors also working on reforming capital requirements standards.

[ . . .]

(Reporting by Huw Jones, editing by Patrick Graham)




In view of the ongoing financial crisis and against the background of the upcoming G20 Leaders’ Summit
on Financial Markets and the World Economy, we have decided to enhance our collaboration and would
like to clarify how we see the roles of our respective bodies in that regard.

1. Surveillance of the global financial system is the responsibility of the IMF.

2. Elaboration of international financial sector supervisory and regulatory policies and standards, and
coordination across the various standard setting bodies, is the principal task of the FSF. The IMF
participates in this work and provides relevant inputs as a member of the FSF.

3. Implementation of policies in the financial sector is the responsibility of national authorities, who
are accountable to national legislatures and governments. The IMF assesses authorities’
implementation of such policies through FSAPs, ROSCs and Article IVs.

4. The IMF and the FSF will cooperate in conducting early warning exercises. The IMF assesses
macro-financial risks and systemic vulnerabilities. The FSF assesses financial system
vulnerabilities, drawing on the analyses of its member bodies, including the IMF. Where
appropriate, the IMF and FSF may provide joint risk assessments and mitigation reports.

Our shared goal is to strengthen the international financial system. To that end, the IMF and the FSF stand ready to support the work of the G20.

Dominique Strauss Kahn                                               Mario Draghi
Managing Director                                                        Chairman
International Monetary Fund                                        Financial Stability Forum

Dear Ministers and Governors:
The financial crisis has underscored the importance of international coordination both in responding to the
crisis and in developing and implementing policies for a sounder financial system.
Coordination is important as well across the international financial institutions and bodies that support the
efforts of national governments, including the IMF and the FSF.

Enhancing Market and Institutional Resilience

On 10 October 2008, the Financial Stability Forum (FSF) presented to the G7 Finance Ministers and central bank Governors a follow-up report to its April Report on Enhancing Market and Institutional Resilience. The follow-up report reviews the implementation of the recommendations set forth by the April report in five areas:

* Strengthened prudential oversight of capital, liquidity and risk management
* Enhancing transparency and valuation
* Changes in the role and uses of credit ratings
* Strengthening the authorities’ responsiveness to risks
* Robust arrangements for dealing with stress in the financial system

An exceptional amount of work is underway by national authorities and international bodies in each of these areas. The FSF will continue to facilitate coordination of these initiatives and oversee their timely implementation, thus preserving the advantages of integrated global financial markets and a level playing field across countries.

The follow-up report is available here.

The FSF Report on Enhancing Market and Institutional Resilience in April 2008 is available here.



Executive Summary
In April 2008, the Financial Stability Forum (FSF) submitted to G7 Finance Ministers and
Central Bank Governors a comprehensive set of recommendations for addressing the
weaknesses that have produced the present crisis and for strengthening the financial system
going forward. The Report on Enhancing Market and Institutional Resilience drew on an
extensive body of work by national authorities and the main international supervisory,
regulatory, and central bank bodies.

The guiding principles of this work is to recreate a financial system that operates with less
leverage, is immune to the set of misaligned incentives at the root of this crisis, where
prudential and regulatory oversight is strengthened, and where transparency allows better
identification and management of risks.

This work is proceeding well and in a coordinated fashion. The actions endorsed by the G7
for implementation by end-2008 will see concrete results by then. These include, as detailed
in this report, further measures to strengthen standards and oversight of bank capital and
liquidity, risk management standards in financial institutions, valuation practices and
accounting standards.

[ . . . ]


MULTIMOD Econometric Model

MULTIMOD is a modern dynamic multicountry macro model of the world economy that has been designed to study the transmission of shocks across countries as well as the short-run and medium-run consequences of alternative monetary and fiscal policies. It has several variants, the current versions of which are referred to as the Mark III generation.

For more information write to multimod@imf.org


GEM: A New International Macroeconomic Model

Prepared by the Research Department

January 2004

GEM: A New International Macroeconomic Model

Prepared by the Research Department

January 2004
The views expressed in this paper are those of the staff and do not necessarily reflect the views of the Executive Board of the IMF.

Use the free Adobe Acrobat Reader to view the full text of this document (456 K)

Also see November 2004 version, published in the Occasional Paper series

I.     Introduction
II     Philosophy and Approach
III.     How Has GEM Been Used?
IV.     Current Development Work
V.     The Road Ahead
Issues for Discussion
II-1.     Estimating Parameter Values
III-1.     GEM Simulations of the Benefits of Greater Euro Area Competition
III-2.     Using GEM to Analyze Monetary Policy Rules
II-1.     Stylized View of Model Development
II-2.     Simple GEM Structure
II-3.     More Complicated GEM Structure
II-4.     Dynamic Responses of GEM Compared to Large Forecasting Models
II-5.     Dynamic Responses of GEM Compared to a VAR
III-1.     Dynamic Effects of More Competition-friendly Policies in the Euro Area
III-2.     Taylor Tradeoff in Monetary Policy Analysis
III-3.     GEM: Impact of a Permanent 20 percent Increase in Oil Prices After One Year
III-4.     GEM: Impact of a Permanent and Temporary 20 Percent Oil Price Hike After One Year
IV-1.     Structural Fiscal Balances in the Major Economic Regions
IV-2.     The Sum of International Assets and Liabilities in the G7
IV-3.     Capital Constraints for Emerging Markets
II-1.     Stylized View of the Strengths and Weaknesses of Successive Generations of Macro Models
III-1.     GEM Estimates of the Long-Run Effects of More Competition-friendly Policies in the Euro Area
III-2.     MULTIMOD: Impact of a Permanent $5 a Barrel Increase in Oil Prices After One Year

“Despite recent progress in financial sector reforms, the long-enjoyed financial stability in the region cannot be taken for granted going forward. Waning economic growth after a period of rapid private credit expansion poses a major risk to the stability of banking system, through the deterioration of banks’ asset quality. There is an urgent need to intensify oversight of banks and bring the nonbank financial sector under effective supervision. The significance of foreign banks in the ECCU also calls for strengthened cross-border regulatory cooperation and information sharing, which the ECCB has been pursuing.

“With very high public debt levels, there is little, if any, room for counter-cyclical fiscal policy in the ECCU. Minimizing fiscal slippages would require following through on revenue reforms (including the introduction and successful implementation of value-added taxes), containing expenditures and enhancing efficiency (particularly public investment and civil service wage bills), and strengthening debt management. Within this framework, a well-targeted social safety net is crucial for mitigating the disproportionate impact of economic hardships on the poor. Strengthening the currency union will also require establishing and meeting annual fiscal targets that can credibly achieve the ECCB’s public debt to GDP target of 60 percent by 2020.

Statement by an IMF Mission on ECCU Common Policies: Discussions with Antigua and Barbuda
Press Release No. 09/30
February 9, 2009

Mr. Paul Cashin, head of an International Monetary Fund (IMF) staff mission to the Eastern Caribbean Currency Union (ECCU) countries, issued the following statement today after the conclusion of the mission:


Strengthened prudential oversight of capital, liquidity and risk management
Basel II capital requirements
• Regulatory capital requirements for banks’ trading book exposures will be raised as
set out in the Guidelines for Computing Capital for Incremental Risk in the Trading
Book, proposed in July by the Basel Committee on Banking Supervision (BCBS)
and the International Organization of Securities Commissions (IOSCO).
• Later this year, the BCBS will set out proposals for raising capital requirements for
re-securitisations and short-term liquidity facilities extended to asset-backed
commercial paper (ABCP) conduits.
Liquidity Management
• Standards will be materially raised by the BCBS Principles for Sound Liquidity Risk
Management and Supervision, published in September, which also requires banks to
maintain robust liquidity cushions as a safeguard against protracted periods of
liquidity stress. The BCBS has also initiated work to promote greater convergence
in the implementation of liquidity supervision for cross-border banking groups.


IMF Sees Spending by Middle Eastern Oil Exporters Softening Global Financial Crisis Impact
Press Release No. 09/28
February 9, 2009

The IMF expects the MENAP oil exporters,1 including the Gulf Cooperation Council nations, to grow at 3.6 percent in 2009, down from 5.6 percent in 2008.

“For the oil exporters, the decline in oil prices and OPEC production cuts are projected to reduce oil export receipts by almost 50 percent in 2009. This implies a loss of government revenue to the tune of US$300 billion compared to 2008,” Mr. Ahmed said. “Nevertheless, most governments—especially those in the GCC—have so far indicated that they will maintain their spending and investment plans.”

“As a result, oil exporters’ current account surplus of around US$400 billion in 2008 is expected to turn into a deficit of US$30 billion in 2009. For most countries, this deterioration is from a position of significant strength, and thus can comfortably be sustained by the large stock of reserves that these economies have built up,” Mr. Ahmed said.

“Thus, by continuing to spend, oil-exporting countries are contributing substantially to supporting global demand and are acting as stabilizers during the global downturn,” he added.

“Risks to the outlook are tilted to the downside. The global economy is going through its most severe economic crisis since the Great Depression with global growth projected to be only 0.5% during 2009. Against this background, the risks to the outlook for the countries in the region include the following: First, if oil exporters cut their long-term oil price expectations and, consequently, their spending, growth prospects would be weaker for the entire region. Second, a more prolonged global recession would imply even weaker exports, tourism, and remittances for most MENAP emerging markets and developing countries. Finally, if asset price corrections deepen and the impact of asset price corrections feed through to corporate and, ultimately, bank balance sheets, some financial institutions in the region may be under stress,” Mr. Ahmed concluded.

1 MENAP oil-exporters include Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, United Arab Emirates, and Yemen.

2 MENAP emerging markets and developing countries include Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia.



Transcript of a Background Briefing by Senior Officials on the International Monetary Fund’s Group of 20 Surveillance Note
Washington, D.C., Thursday, February 5, 2009

With me today are senior staff from the Research Department, Monetary and Capital Markets Department, the Fiscal Affairs Department, and the Strategy, Policy and Review Department of the IMF. Each of these departments has had a role in the preparation of this G-20 Surveillance Note. This is a background briefing, and the participants should be generically identified as senior IMF officials or IMF officials.

SENIOR IMF OFFICIAL: Let me speak very briefly about what is this report, what it has in it, what’s new, and what’s not new. First of all, what is this report? It’s a report on the prospects of the global economy and on financial market developments prepared by Fund staff as background material and input for the meeting of G-20 deputies in London last weekend. This is a preparatory meeting in the run-up to the April 2nd head-of-state summit. Further information on the G-20 you can find on the G-20 website.

We typically prepare these surveillance notes, as we call them, in advance of G-20 meetings. We decided to publish this report on this occasion as part of our continuing efforts to increase transparency, and because we thought this report provided interesting and useful information to you that would support the messages that were included in our WEO update and our GFSR update that we released last week.

First of all, let me emphasize what’s not new in this report. As you’ll quickly see, the overall assessment of the outlook and the policy messages are essentially the same as in the updates last week. On the global outlook, we see very limited growth; the numbers are the same. We have a half of a percent growth in the global economy in 2009, and the advanced economies in a severe recession, followed by a gradual recovery in the course of 2010, provided that the policies are effective.

In terms of what policies are needed, we’re emphasizing the need for a combination of both policies to restore the financial sector to health and supporting macroeconomic policies. On the financial side, we’ve emphasized the need for a three-pronged approach, the continued provision of ample liquidity, dealing with the bad asset problem, and providing additional capital as needed to the financial system.

And then on the macro side, we have emphasized the need for supporting monetary and fiscal policies to support aggregate demand in the global economy and to help cut the negative interaction between the real economy and the financial factor.

[ . . . ]

On the monetary policy side, we’re commenting that conventional monetary policy is likely to have limited effectiveness because of the financial disruptions and because we are getting close to the zero interest rate found in a number of economies. There certainly is some scope for supporting the economy through credit easing, targeted at illiquid markets, but the extent of the impact of such easing is uncertain. For this reason, we put a lot of emphasis on the importance of fiscal policy, a broad fiscal stimulus, across a range of countries that have policy room as well as letting the automatic stabilizers work. But at the same time, countries need to be mindful, of the need to preserve confidence in medium-term fiscal sustainability. Not all countries have the same amount of fiscal room.

So those are the key messages of the report. What is coming? There will be further follow up on this issue of the impact of fiscal policy. The Fiscal Affairs Department is preparing a report on the impact of the crisis on fiscal policy, and that will be coming out within the next month or two. And we in the Research Department are continuing to do further analysis of the impact of fiscal policy on the economy. And again, we will be preparing a report that we hope to be releasing in the next month or so. This is all in the run-up to our normal work towards preparing the spring world economic outlook and global financial stability reports, which will be available toward to the end of April.

Question and Answer Session –

SENIOR IMF OFFICIAL: Well, the estimates in the table should be seen in the context of a broader set of estimates. These are only the discretionary packages. So there are other things going on, too, as mentioned earlier, the automatic stabilizers. We’ve also only really looked at measures that have been introduced in response to the crisis, and as well only things that would affect the deficit here. So there are other estimates — there are other things going on where governments are, for instance, acquiring assets through their actions. Those don’t affect the deficit when the assets are acquired; they may do so later on. So just a word there on what exactly is in the table, and different countries have announced different packages. Oftentimes the focus is on headline measures, and we’ve tried to limit it again to measures that are directly related to the crisis, new measures, and measures that affect the deficit and don’t entail an acquisition of assets.

SENIOR IMF OFFICIAL: Maybe just let me add for a second on the global outlook. Certainly the current situation is highly uncertain. It is important that effective policies are implemented, and part of that policy support is on the fiscal side. But it’s equally important that there be effective measures to deal with the financial problems as well as support of monetary policy. And we don’t think that fiscal policy alone is going to be able to restore the global economy to sustained growth. But fiscal policy in conjunction with financial policies and monetary policies can be effective. And the scale of the fiscal policies in part will depend on the progress that’s being made by the global economy. One of the points that we make is that there has to be a calibration of the fiscal response to the response of the global economy. And it will be important to sustain fiscal support for the global economy as long as the weakening is continuing.


February 3, 2009

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets totaled $75,524 million as of the end of that week, compared to $75,857 million as of the end of the prior week.

I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)


The presenting member began by noting that the trends in unemployment rate where closely correlated with tax receipts and that the general consensus was that unemployment rates would rise from current levels, suggesting that Treasury funding needs would be sizable for some time. The presenting member noted that FY09 net borrowing could be as high as18 percent of GDP while debt to GDP ratios were projected to rise above 50 percent.

The presenting member then raised the issue that international investment, particularly from Asia, was an important component to future funding. The member noted that growth world wide was declining and trade flows were being impacted, potentially leading to a more domestically- oriented position on investments.

Press Room

February 4, 2009

Minutes of the Meeting of the
Treasury Borrowing Advisory Committee
Of the Securities Industry and Financial Markets Association

February 3, 2009

The Committee convened in closed session at the Hay-Adams Hotel at 11:25 a.m. All Committee members were present except for Susan Estes. Acting Assistant Secretary for Financial Markets, Karthik Ramanathan welcomed the Committee and gave them the charge.

The first item on the charge related to Treasury’s increasing financing requirements and the potential need to make further changes to the auction calendar in a manner that would provide the greatest flexibility to Treasury while minimizing the impact on markets. Assistant Secretary Ramanathan delivered a presentation to the Committee which highlighted current fiscal conditions and potential factors to consider in addressing this issue.

Assistant Secretary Ramanathan stated that market estimates for the FY 2009 deficit averaged $1.6 trillion (vs. dealer estimates of $988 billion in November 2008), and marketable borrowing needs ranged between $1.5 trillion and $2.5 trillion. Highlighting several charts, Ramanathan stated that the fiscal outlook remained challenging, and potential measures to improve the economy portended sizeable borrowing requirements for at least FY 2009 and FY2010. Given the uncertainty regarding various proposals, many market participants have yet to fully incorporate firm values in their deficit or marketable borrowing estimates. Specifically, market participants were generally uncertain regarding fiscal measures, current legislation, and other credit market actions which may serve to alleviate current conditions.

Ramanathan noted that there has been significant declines are becoming evident in receipts, stemming from sharp declines in both corporate and individual taxes. In the last quarter, receipts were lower by 10 percent, with corporate taxes lower by 46 percent year-over-year. Outlays were 45 percent higher, reflecting nearly $320 billion in expenditures related to the Troubled Assets Relief Program (TARP) and the Housing and Economic Recovery Act of 2008 (Senior Preferred Agreement investments and Agency MBS purchases related to Government Sponsored Enterprises) as well as other financial market stabilization efforts. Current trends in both receipts and outlays, and the lag effects of economic activity, suggest that financing requirements will remain sizable for the remainder of this year and into next year.

Ramanathan noted that the rapid disbursement of funds related to TARP required increases in bill financing and short-dated coupons. As a result, the average maturity of the overall marketable debt portfolio fell to 49 months. While this lowered average maturity, Treasury at the same time introduced a second reopening of the 10 year and moved to quarterly 30-year bonds so that bill issuance could roll into coupon issuance. Bills currently represent about 33 percent of outstanding marketable debt, and while demand remains robust, Treasury recognizes the need to monitor short-term issuance versus longer dated issuance. As a result, Treasury is balancing the borrowing profile to address these large financing needs (in the short to medium term) while also preserving flexibility to address cyclical or structural shifts.

To that end, Ramanathan stated that Treasury will seek to extend the average maturity and duration of the portfolio with the realization that continued large issuance from bills and shorter dated coupons will make this extension a gradual process.

The charts then highlighted constraints to be considered in deciding how to extend the portfolio, including risk appetite by the market, balance sheet constraints, and competition by other less liquid yet guaranteed or “effectively guaranteed” products. Moreover, state and local government securities program has seen redemptions to-date of over $10 billion, coming on top of last year’s redemptions of $36 billion and FY 2007 issuance of $58 billion.

Ramanathan noted that gross issuance of Treasuries will potentially reach $6.5 trillion dollars in FY2009. Increases in issuance sizes, issuance frequencies, the issuance of larger, longer-dated cash management bills, and the introduction of securities would serve to finance funding needs. Ramanathan stated that issuance sizes of nominal coupons would be increased while TIPS would continue to grow at a slower pace based on several studies which show a higher cost relative to nominal issuance.

Before discussing the first item in the charge the Committee moved on to the second item in the charge concerning factors that Treasury should consider in fiscal years 2009 and 2010. A Committee member gave the presentation.

The presenting member began by noting that the trends in unemployment rate where closely correlated with tax receipts and that the general consensus was that unemployment rates would rise from current levels, suggesting that Treasury funding needs would be sizable for some time. The presenting member noted that FY09 net borrowing could be as high as18 percent of GDP while debt to GDP ratios were projected to rise above 50 percent.

The presenting member noted that the Fed’s stance on monetary policy would likely be stable at current low rate levels for at least a year and perhaps longer. The presenting member enumerated several programs that would compete for funding including several Federal Reserve liquidity facilities, FDIC programs and Agency programs. Some of these programs, such as the FDIC insured bank debt program which has issued $147 billion to date, while illiquid and with varied terms, were potential alternatives to Treasury debt.

The Committee member then clearly noted that as a percent of debt to GDP, Treasury was well below other major G7 nations, and its capacity to borrow was large given the size of GDP. Lower financing rates as well as a deep, active market also increase Treasury’s ability to borrow.

The presenting member then raised the issue that international investment, particularly from Asia, was an important component to future funding. The member noted that growth world wide was declining and trade flows were being impacted, potentially leading to a more domestically- oriented position on investments.

At that point, a discussion followed regarding the best course of action for Treasury.

A member began by noting that liquidity preference was high for Treasuries and that the ability to fund in bills and shorter-dated coupons remained high. Another member stated that some money funds were closing to new investors and that might impair funding capacity.

One member asked if Treasury was publicizing “Treasury Direct”, the online system that allows institutional and retail investors to purchase securities directly from Treasury at the auction. Ramanathan noted that Treasury explicitly lowered the minimum denomination on marketable Treasuries to $100 from $1000 to broaden the scope of potential investors, but also noted that savings bonds investments have declined for the past 20 consecutive quarters.

One Committee member raised the issue of lower liquidity in the Treasury market in the previous quarter, indicating that government trading desks were constrained by balance sheets. Several members stated that liquidity had improved since the fails situation in the fourth quarter of 2008, and that the liquidity in the market prior to 2007 was not sustainable. Another member stated that current conditions, while less liquid, still were attractive to domestic and international capital.

Another member said that if Treasury continued to remain completely transparent and predictable in its issuance pattern and decisions, demand would appear at a market price. Most of the Committee stated that Treasury should continue its transparent decision-making process – despite the high degree of uncertainty – and that its signaling of potential changes in advance as more information becomes available has greatly assisted market participants. Given larger benchmark coupon sizes and the potential need for additional securities, telegraphing these moves as has been done over the past in a broad manner would enable greater risk taking and appetite.

The Committee then turned to a discussion of what specific actions should be taken at this juncture given the uncertainty facing Treasury. There was consensus that Treasury should extend the maturity of the debt portfolio. Committee members were reluctant to suggest that Treasury target an average length because such a target may limit flexibility at some future point.

The Committee stated that benchmark nominal coupon issuance sizes could be increased over the next few months by at least five billion each in most issues out to five years with minimal concession, with even greater flexibility for increases in the 5-year note.  Members stated that moving from quarterly to monthly 30-year bond issuance in which the security is reopened twice in the months following the initial quarterly offering was appropriate and would help extend average maturity while addressing borrowing needs in the longer term

There was a general consensus that the market was expecting the reintroduction of a 7- year note. Committee members felt that monthly issuance was appropriate, and suggested an initial monthly offering followed by two reopenings. Members suggested that the 7-year would fit in the auction calendar at the end of the month after the 2-year and 5-year note auctions. The remaining financing could be done in bills, both regular and longer dated cash management bills.

Members also discussed the potential to issue other securities if needed including a reintroduction of a 4-year note, a 20-year bond, and/or longer-dated debt but stated that it was premature to proceed with any of those options at this time since nominal sizes could be increased and the additions to the calendar would assist Treasury in achieving its financing.

Ramanathan noted that calendar issues, including dates for auctions and settlement dates, needed to be considered if additional securities were introduced.

The meeting adjourned at 12:50 PM.

The Committee reconvened at the Department of the Treasury at 6:00 p.m. All of the Committee members were present except for Estes. The Chairman presented the Committee report to Acting Assistant Secretary Ramanathan.

A brief discussion followed the Chairman’s presentation but did not raise significant questions regarding the report’s content.

The Committee then reviewed the financing for the remainder of the January through March quarter and the April through June quarter (see attached).

The meeting adjourned at 6:15 p.m.

Karthik Ramanathan, Director
Acting Assistant Secretary for Financial Markets
United States Department of the Treasury
February 3, 2009

Certified by:

Keith T. Anderson, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
February 3, 2009

Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge – February 3, 2009

Fiscal Outlook

Treasury is expecting to make further changes to the auction calendar as a result of increased financing needs. What adjustments to the current securities offerings should Treasury make at this time that would be easily introduced and provide increased flexibility?

Impacts of Liquidity initiatives on Treasury Borrowing

What factors and/or issues should Treasury be aware of in fiscal years 2009 and 2010? Please discuss the implications for Treasury borrowing of the various government liquidity programs and loan guarantees as well as other exogenous factors.

Financing this Quarter

We would like the Committee’s advice on the following:

* The composition of Treasury notes and bonds to refund approximately $36.3 billion of privately held notes maturing on February 15, 2009.
* The composition of Treasury marketable financing for the remainder of the January – March quarter, including cash management bills.
* The composition of Treasury marketable financing for the April – June quarter, including cash management bills.


Revenue results in this year’s Financial Report were $2.7 trillion, increasing slightly by $34 billion or just over 1 percent, compared to last year. Total costs were $3.6 trillion, an increase of $.7 trillion or 25 percent compared to last year. Net operating cost increased to $1 trillion, up from last year’s net operating cost of $275.5 billion. The growth in the net operating cost resulted from the economic slowdown, the government’s response to the slowdown, and significant re-estimates of the government’s long-term liabilities for veterans’ disability compensation benefits.

The report also discusses the steps the federal government has taken to restore stability to the U.S. financial system. Although recently passed housing and economic stabilization laws authorize the government to spend money in the recovery effort, the majority of those funds have yet to actually be spent and, as a result, are not and would not be reported in the government’s consolidated financial statements. Amounts spent under the stabilization initiative have been and are expected to be treated as investments or loans, as the government may recover, and possibly even earn a positive return on amounts invested as economic conditions improve.


December 15, 2008
U.S. Government Releases FY 2008 Financial Report
OMB Director Jim Nussle
Treasury Secretary Henry M. Paulson, Jr.

In addition, the number of material weaknesses government-wide declined by 18 percent, from 39 to 32. This is the fifth consecutive year that material weaknesses have declined, with a nearly 50 percent decrease in weaknesses since 2001.

For the past four years, Treasury has issued the report on December 15 or the first business day following that date, well ahead of the statutory March 31 deadline. As the issues discussed in the Report affect, and should be of interest to every citizen, for the second consecutive year, the Department is also releasing an accompanying Citizen’s Guide to the Financial Report. The report and the guide are available at http://www.fms.treas.gov/fr/index.html.



showing 2005 – Sept 2008 actual sources and uses reconciliation table


April 28, 2008 – (note that this is from April – no evidence of a significant problem?)

Treasury Announces Marketable Borrowing Estimates

Washington- Treasury announced its current estimates of marketable borrowing today for the April – June 2008 and July – September 2008 quarters:

Over the July – September 2008 quarter, the Treasury expects to borrow $112 billion of marketable debt, assuming an end-of-September cash balance of $45 billion.

Anthony Ryan, Assistant Secretary of the Treasury for Financial Markets (under Paulson/Bush)


All Treasury bills, notes, bonds and TIPS may now be sold and transferred in multiples of $100. The new minimum and multiples will also apply to outstanding Treasury marketable securities effective April 7, 2008. Previously, the securities could only be transferred in increments of $1,000.

Treasury securities can be purchased non-competitively on original issue directly from the Treasury after opening either a TreasuryDirect account online at http://www.treasurydirect.gov or a Legacy Treasury Direct account. Securities can also be obtained on either a competitive or non-competitive basis through bond brokers and dealers. More information on how to purchase Treasury marketable securities can be found on http://www.treasurydirect.gov.

Additionally, the minimum and multiple par amount of Treasury securities that may be stripped in the Separate Trading of Registered Interest and Principal of Securities (STRIPS) program will be reduced to $100 beginning April 7, 2008.



March 5, 2008

Opening Statement by Secretary Henry M. Paulson, Jr.
on the Department of the Treasury FY 2009 Budget Request
before the House Committee on Appropriations
Subcommittee on Financial Services and General Government

Washington — Chairman Serrano, Representative Regula, Members of the Committee: Thank you for the opportunity to discuss the Treasury Department’s proposed fiscal year 2009 budget. Our budget request reflects the Department’s continued commitment to promoting a healthy U.S. economy, fiscal discipline and national security. The Department has broad responsibility in federal cash management, tax administration and plays an integral role in combating terrorist financing and advocating the integrity of the U.S. and global financial systems.

Our spending priorities for the 2009 fiscal year fall into six main categories. I will briefly describe the priorities and then take your questions.

U.S. Economic Steward

Treasury has an important role to play as steward of the U.S. economy, and our offices provide technical analysis, economic forecasting and policy guidance on issues ranging from federal financing to domestic and global financial systems.

Those functions are especially critical now as the U.S. economy, through a combination of a significant housing correction, high energy prices and capital market turmoil has slowed appreciably. Our long term economic fundamentals are solid, and I believe our economy will continue to grow this year, although not as rapidly as in recent years.

In response to economic signals, early this year the Administration and the Congress worked together to quickly pass, on a bipartisan basis, the Economic Stimulus Act of 2008. And I would like to thank this subcommittee for approving funds for the IRS and the FMS to administer the stimulus check rebate program under that Act.

As you know, the stimulus payments to households and the incentives to businesses in the Act, together, are estimated to lead to the creation of half a million jobs by year-end. This will provide timely and effective support for families and our economy, and it wouldn’t be possible without your leadership.

Strengthening National Security

Treasury’s Office of Terrorism and Financial Intelligence (TFI) uses financial intelligence, sanctions, and regulatory authorities to track and combat threats to our security and safeguard the U.S. financial system from abuse by terrorists, proliferators of weapons of mass destruction and other illicit actors.

To continue and build on our efforts to combat these threats, we are requesting an $11 million increase for TFI, including $5.5 million for the Financial Crimes Enforcement Network to ensure effective management of the Bank Secrecy Act.

Efficient Management of the Treasury Department

The budget request emphasizes infrastructure and technology investments to modernize business processes and improve efficiency throughout the Treasury Department. We will continue to make information technology management a priority, and have taken several significant steps to strengthen our systems and oversight.

Fiscal Discipline

Treasury is committed to managing the nation’s finances effectively, ensuring the most efficient use of taxpayer dollars and collecting the revenue due to the federal government.

Enforcing the Nation’s Tax Laws Fairly and Efficiently

The Internal Revenue Service, of course, plays an integral role in this. The budget requests a 4.3 percent increase in IRS funding.

As in the past three budget requests, we are proposing to increase IRS enforcement funding as a Budget Enforcement Act program integrity cap adjustment. IRS enforcement efforts have yielded record revenue collections. With the requested funding, the IRS will collect an estimated $55 billion in direct enforcement revenue in 2009.

The budget also includes a number of legislative proposals intended to target the tax gap and improve tax compliance, with an appropriate balance between enforcement and taxpayer service. These proposals are estimated to generate $36 billion over the next ten years.

International Programs

We will continue to focus efforts on supporting a stable and growing global economy, through on-going dialogue and initiatives with developing economies throughout Asia, Latin America and Africa.

In addition we are asking your colleagues on the Foreign Operations Subcommittee to support key objectives of the President’s international assistance agenda. This includes funding for the multilateral development banks – notably new replenishments for the World Bank’s International Development Association and the African Development Fund.

Also included as a Foreign Operations priority is a $400 million request for the first installment of a multi-billion dollar clean technology fund that, with additional funding from the United Kingdom, Japan and other donors, will help finance clean energy projects in the developing world and make strides towards addressing global climate change.


Overall, the budget request reflects a prudent and forward-leaning approach to fulfilling the Treasury Department’s core responsibilities to support our economy, managing the government’s finances and ensuring financial system security. I thank you for your past support and consideration of our work, and look forward to working with you during your deliberations.

Thank you and I welcome your questions.



Supervisory oversight of risk management
• The BCBS is enhancing guidance for supervisory oversight of firm-wide risks and
management of specific risks areas such as concentrations, off-balance sheet
exposures and securitisations, reputational risk and implicit support, valuations and
liquidity risk. The BCBS is also developing principles for sound stress testing
practices by the end of this year, which it will reinforce through the Pillar 2 review

Enhancing transparency and valuation
• Using the disclosure framework recommended by the FSF, large financial
institutions have substantially expanded their disclosures about risk exposures,
valuations, off-balance sheet entities and related policies. A proposed standard of
the International Accounting Standards Board (IASB) expected by year-end will set
forth enhancements to required risk disclosures about financial activities.


Report of the Financial Stability Forum on Enhancing Market and
Institutional Resilience
Follow-up on Implementation