Search Results
Working Paper
Forward guidance and the state of the economy
This paper examines forward guidance using a nonlinear New Keynesian model with a zero lower bound (ZLB) constraint on the nominal interest rate. Forward guidance is modeled with news shocks to the monetary policy rule. The effectiveness of forward guidance depends on the state of the economy, the speed of the recovery, the ZLB constraint, the degree of uncertainty, the monetary response to inflation, the size of the news shocks, and the forward guidance horizon. Specifically, the stimulus from forward guidance falls as the economy deteriorates or as households expect a slower recovery. When ...
Journal Article
Where is all the U.S. currency hiding?
An examination of the U.S. dollar's growing popularity abroad and a discussion of how the rising currency demand could affect U.S. economic policy.
Journal Article
M2 growth in 1995: a return to normalcy?
A discussion of M2's demise as a reliable indicator of financial conditions in the economy, and a look at recent evidence suggesting that even though the aggregate has been behaving more normally over the past year or so, it is unlikely to regain its status as a key policy guide any time soon.
Working Paper
The monetary instrument matters
This paper revisits the issue of money growth versus the interest rate as the instrument of monetary policy. Using a dynamic stochastic general equilibrium framework, we examine the effects of alternative monetary policy rules on inflation persistence, the information content of monetary data, and real variables. We show that inflation persistence and the variability of inflation relative to money growth depends on whether the central bank follows a money growth rule or an interest rate rule. With a money growth rule, inflation is not persistent and the price level is much more volatile than ...
Working Paper
Monetary policy, the tax code, and the real effects of energy shocks
This paper develops a monetary model with taxes to account for the apparently asymmetric and time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data. In our model, the real effects of an energy shock are amplified when the monetary authority responds to that shock by changing its inflation objective. Specifically, higher inflation raises households? nominal capital gains taxes since those taxes are not indexed to inflation. The increase in taxes behaves as a negative wealth effect and generates an immediate decline in output, investment, and hours ...
Journal Article
Taylor-type rules and total factor productivity
This paper examines the impact of a persistent shock to the growth rate of total factor productivity in a New Keynesian model in which the central bank does not observe the shock. The authors then investigate the performance of alternative policy rules in such an incomplete information environment. While some rules perform better than others, the authors demonstrate that inflation is more stable after a persistent productivity shock when monetary policy targets the output growth rate (not the output gap) or the price-level path (not the inflation rate). Both the output growth and price-level ...
Working Paper
Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates
There is strong evidence of a stable ?money demand? relationship for MZM and M2 through the 1990s. Though the M2 relationship breaks down somewhere around 1990, evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in M2 velocity that began around 1990 and was largely over by 1994. This paper?s results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds. This reallocation may have been induced by depository restructuring, but it could also be explained by appropriately ...
Journal Article
The monetary instrument matters
This paper revisits the debate over the money supply versus the interest rate as the instrument of monetary policy. Using a dynamic stochastic general equilibrium framework, the authors examine the effects of alternative monetary policy rules on inflation persistence, the information content of monetary data, and real variables. They show that inflation persistence and the variability of inflation relative to money growth depend on whether the central bank follows a money growth rule or an interest rate rule. With a money growth rule, inflation is not persistent and the price level is much ...
Journal Article
MZM: a monetary aggregate for the 1990s?
A presentation of some tentative evidence that MZM, an alternative money measure comprising all instruments payable at par on demand, has exhibited a fairly stable relationship with nominal GDP and with its own opportunity cost in recent years, suggesting a potential role for policy.
Working Paper
How robust are popular models of nominal frictions?
This paper analyzes three popular models of nominal price and wage frictions to determine which best fits post-war U.S. data. We construct a dynamic stochastic general equilibrium (DSGE) model and use maximum likelihood to estimate each model's parameters. Because previous research finds that the conduct of monetary policy and the behavior of inflation changed in the early 1980s, we examine two distinct sample periods. Using a Bayesian, pseudo-odds measure as a means for comparison, a sticky price and wage model with dynamic indexation best fits the data in the early-sample period, whereas ...