, albeit at new market - clearing prices. it is notable that the level of fails - todeliver in treasury trades did not spike amid the market turmoil despite very intense safehaven demands for treasury securities at times. of great importance, clearing and settlement systems proved to be extremely resilient throughout the episode, even if most post - trade infrastructure providers experienced record transaction volumes. to be sure, mortgage lenders came under severe stress, and several large commercial and investment banks were subjected to strains brought about by higher contingent liabilities and various other commitments. still, at least by number, most financial institutions remained " open for business, " willing to lend, albeit at tighter terms. and although many hedge funds posted meaningful losses, on balance, they appear to have performed a useful function during this period of considerable tumult. although these positive signs are acknowledged, financial conditions were clearly stressed in recent months. when markets do not clear and some large financial institutions withdraw from risk - taking, it is prudent for a central bank to take account of the impaired nature of market functioning. the specter of financial instability is heightened, and the prospect of harm to the overall economy is difficult to dismiss. the federal reserve responded to these developments by providing reserves to the banking system ; it announced a cut in the discount rate of 50 basis points and adjustments to discount window practices to facilitate the provision of term funding. in the current episode, the disruptions in the structured finance, mortgage, leveraged loan, commercial paper, and interbank term funding markets made credit considerably less available for many households and businesses and thus, ultimately, represented a risk to the performance of our macroeconomy. as a result, the federal reserve took action to help forestall this risk, including the 50 basis points cut in the target federal funds rate on september 18. recent financial market developments it is premature to judge the ultimate effects of our policy actions on financial conditions, let alone on macroeconomic performance. our dashboard of financial indicators, however, points to some encouraging signs, suggesting that financial conditions might be normalizing somewhat. in particular, i am encouraged by the price differentiation in certain markets based upon company - specific and asset - specific assessments of fundamental value. although prices in several markets were no doubt affected by distortions around the quarterend, some term spreads in the interbank market appear to have reversed a portion of their earlier increases, as have spreads in some parts of the commercial paper market. on the basis of our

stanley fischer : ( money ), interest and prices – patinkin and woodford speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at “ a conference in honor of michael woodford ’ s contributions to economics ”, cosponsored by the federal reserve bank of new york, columbia university program for economic research, and columbia university department of economics, new york city, 19 may 2016. * * * the footnotes can be found at the end of the speech. i am grateful to hess chung, rochelle edge, william english, michael kiley, thomas laubach, matthias paustian, david reifschneider, jeremy rudd, and stacey tevlin of the federal reserve board for their advice and assistance it is an honor for me to speak at the opening of this conference in honor of michael woodford, whose contributions to the theory of economic policy are frequently a central part of the economic analysis that takes place in the policy discussions at the federal reserve. the main story i want to tell today is about the quality of michael ’ s major book, interest and prices ( henceforth mwip ). i will start with his predecessors, beginning as michael does in his interest and prices with wicksell. 1, 2 i shall quote key points from and about wicksell ’ s interest and prices ( henceforth kwip ), and following that, from patinkin ’ s money, interest, and prices ( second edition, 1965 ) ( henceforth mip ), which are relevant to mwip, michael woodford ’ s interest and prices ( 2003 ). wicksell ’ s interest and prices 1. inflation. the subtitle of wicksell ’ s interest and prices ( kwip ) is a study of the causes regulating the value of money and its opening paragraph emphasizes the problem of inflation : changes in the general level of prices have always excited great interest. obscure in origin, they exert a profound and far - reaching influence on the whole economic and social life of a country. wicksell follows this opening by discussing the difference between the ability of the economic system to adjust to changes in relative prices and to changes in the general level of prices. in the latter case, adjustment can no longer proceed through changes in demand or through a movement of factors of production from one branch of production to another. its progress is much slower, being accomplished under continual difficulties, and it is never complete ; so