Search Results
Journal Article
A forward-looking monetary policy reaction function
Working Paper
The bond rate and actual future inflation
The long-term bond rate is cointegrated with the actual one-period inflation rate during two sample periods, 1961Q1 to 1979Q3 and 1961Q1 to 1995Q4. This result indicates that in the long run the bond rate and actual inflation move together. The nature of short-run dynamic adjustments between these variables has, however, changed over time. In the pre-1979 period, when the bond rate rose above the one-period inflation rate, actual inflation accelerated. In the post-1979 period, however, the bond rate reverted back and actual inflation did not accelerate. Thus, the bond rate signaled future ...
Journal Article
The tax effect, and the recent behaviours of the after-tax real rate : is it too high?
Concerns that interest rates are too high have been prevalent throughout the 1980s. Even after adjusting for expected inflation, many people argue that real interest rates are inordinately high by historical standards. Yash Mehra, in his article The Tax Effect and the Recent Behaviour of the After-Tax Real Rate: Is It Too High?, points out that because interest income is taxed, business decisions are based on the after-tax real rate and public concern should focus on this measure of interest rates. Mehra adds to the accumulating evidence that changes in taxes on interest income alter the ...
Journal Article
Short-term headline-core inflation dynamics
This article investigates empirically short-term dynamics between headline and core measures of consumer price index and personal consumption expenditure inflation over three sample periods: 1959:1-1979:1, 1979:2-2001:2, and 1985:1-2007:2. Headline and core inflation measures are co-integrated, suggesting long-run co-movement. However, the ways these two variables adjust to each other in the short run and generate co-movement have changed across these sample periods. In the pre-1979 sample period, when a positive gap opens up with headline inflation rising above core inflation, the gap is ...
Journal Article
Oil prices and consumer spending
Journal Article
Real output and unit labor costs as predictors of inflation
Granger-causality tests used here find that: [1] unit labor costs add no predictive power to inflation forecasts; and [2] the gap between actual and potential output does help predict inflation, but only in the short run.
Journal Article
An error-correction model of U.S. M2 demand
An error-correction model is used to study the long- and short-run determinants of U.S. demand for M2. The money demand function presented here exhibits parameter stability and predicts quite well the actual behavior of M2 growth in the 1980s.
Journal Article
On the sources of movements in inflation expectations : a few insights from a VAR model
Using a VAR model that includes a survey measure of expected inflation, this article investigates the responses of expected inflation to temporary shocks to macroeconomic variables during three sample periods, 1953:1--1979:1, 1979:2--2001:1, and 1985:1--2007:1. Shocks to actual inflation, commodity prices, and expected inflation itself have been three major sources of movement in expected inflation, together explaining over 80 percent of the variability in expected inflation. Positive shocks to actual inflation, commodity prices, and expected inflation itself lead to increases in expected ...
Working Paper
The Taylor principle, interest rate smoothing and Fed policy in the 1970s and 1980s
Using real time estimates of output gaps or Greenbook forecasts of the unemployment rate, this article estimates Taylor-type policy rules that predict the actual behavior of the funds rate during two sample periods, 1968Q1 to 1979Q2 and 1979Q3 to 1994Q4. The inflation rate response coefficient is close to unity over the first sub-period and well above unity over the second, suggesting Fed policy violated the Taylor principle during the first period. The adjustment of the funds rate in response to fundamentals is not as rapid during the first period as it is during the second. Together these ...