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Journal Article
Inflation measure, Taylor rules, and the Greenspan-Bernanke years
Recent research has emphasized that the Federal Reserve under Chairman Alan Greenspan was forward looking, smoothed interest rates, and focused on core inflation. The semiannual monetary policy reports to U.S. Congress indicate that the measure of inflation used in monetary policy deliberations has also been refined over time: For most of the Greenspan period before 2000, inflation forecasts used the consumer price index (CPI), but in the early 2000s, inflation forecasts switched to using the core personal consumption expenditures (PCE) deflator. Using information contained in Greenbook ...
Journal Article
In search of a stable, short-run M1 demand function
Conventional M1 demand functions reformulated using error-correction and cointegration techniques neither depict parameter stability nor satisfactorily explain short-run changes in M1. Thus, M1 remains unreliable as an indicator variable for monetary policy.
Working Paper
Velocity and the variability of money growth: evidence from Granger- causality tests reevaluated
Hall and Nobel (1987) use the Granger-causality test to show that volatility influences velocity, leading them to conclude that the recent decline in the velocity of Ml is due to increased volatility of money growth which is alleged to be caused by the Federal Reserve's new operating procedures. This note shows that such a conclusion is unwarranted, because the causality result reported in their paper is not robust. When the test is implemented either using first differences of the volatility variable or using the volatility and velocity variables that are based on the broad definition of ...
Working Paper
The recent financial deregulation and the interest elasticity of the simple M1 demand function : an empirical note
The main objective of this note is to examine whether the interest elasticity of money demand has increased during the last few years. A simple money demand regression that includes additional intercept and slope dummy variables defined over the interval 1981.01 to 1985.03 is estimated for the whole sample period 1961.01-1985.03. The regression results show that the elasticity of money demand with respect to market interest rates has for now increased. No shifts are detected in income and time trend elasticities. The in-sample predictions of the more interest-sensitive money demand regression ...
Journal Article
A forward-looking monetary policy reaction function
Journal Article
Unit labor costs and the price level
Working Paper
A federal funds rate equation
This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here however indicate that in recent years the Fed has discounted the leading indicator properties of money. In contrast, the bond rate has been a key determinant of the funds rate ...
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.
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 ...