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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
A review of empirical studies of the money supply mechanism
Working Paper
The reform of October 1979: how it happened and why
This study offers a historical review of the monetary policy reform of October 6, 1979, and discusses the influences behind it and its significance. We lay out the record from the start of 1979 through the spring of 1980, relying almost exclusively upon contemporaneous sources, including the recently released transcripts of Federal Open Market Committee (FOMC) meetings during 1979. We then present and discuss in detail the reasons for the FOMC's adoption of the reform and the communications challenge presented to the Committee during this period. Further, we examine whether the essential ...
Journal Article
The monetary/fiscal policy debate: a controlled experiment
Working Paper
The great inflation: did the shadow know better?
The Shadow Open Market Committee was formed in 1973 in response to rising inflation and the apparent unwillingness of U.S. policymakers to implement policies necessary to maintain price stability. This paper describes how the Committee's policy views differed from those of most Federal Reserve officials and many academic economists at the time. The Shadow argued that price stability should be the primary goal of monetary policy, and favored gradual adjustment of monetary growth to a rate consistent with price stability. The paper evaluates the Shadow's policy rule in the context of the New ...
Working Paper
Inflation in the G7: mind the gap(s)?
We investigate the importance of trend inflation and the real-activity gap for explaining observed inflation variation in G7 countries since 1960. Our results are based on a bivariate unobserved-components model of inflation and unemployment in which inflation is decomposed into a stochastic trend and transitory component. As in recent implementations of the New Keynesian Phillips Curve, it is the transitory component of inflation, or ?inflation gap?, that is driven by the real-activity gap, which we measure as the deviation of unemployment from its natural rate. Even when allowing for ...