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Journal Article
Monetary policy and the new normal
Is the economy in for a prolonged spell of slow growth, as some believe, or a burst of innovation and productivity? In either event, policymakers must pay close attention to productivity trends.
Journal Article
Oil shocks, monetary policy, and economic activity
Various reasons have been given to explain downturns in U.S. economic activity since World War II. Romer and Romer (1989) argued that these recessions were primarily associated with monetary contractions, while Hamilton (1983) and others attributed them to oil price increases. We investigate these competing hypotheses and find that when measures of oil prices are included, the Romers measure of monetary policy does not significantly explain economic downturns. However, alternative measures of monetary policy, specifically the federal funds rate the spread between the ten-year Treasury rate ...
Journal Article
The relationship between capacity utilization and inflation
There's a common belief among economists that when there?s slack in the economy ? that is, when labor and capital are not fully employed ? the economy can expand without an increase in inflation. One measure of the intensity with which labor and capital are used in producing output is the capacity utilization rate. According to some economists, when capacity utilization is low, firms can increase employment and their use of capital without incurring large increases in the costs of production. So firms will not be forced to raise prices in order to make profits on additional output. But this ...
Working Paper
Monetary policy, secrecy, and federal funds rate behavior
The behavior of the Federal Reserve System can be characterized as secretive with respect to its control of monetary aggregates. One common justification for this secrecy is that markets will overreact to information, causing undue variability in interest rates. However, the consequences of keeping policy objectives hidden has received little formal attention. This paper takes an initial step by examining the variability of the federal funds rate and total reserves under nonborrowed reserve targeting. The major result is that the disclosure of operating procedures will generally increase the ...
Journal Article
Investing in equities: can it help social security?
Working Paper
Inflation and Real Activity with Firm Level Productivity Shocks
[REVISED AUG 2019]In the last fifteen years there has been an explosion of empirical work examining price setting behavior at the micro level. The work has in turn challenged existing macro models that attempt to explain monetary nonneutrality, because these models are generally at odds with much of the micro price data. A second generation of models, with fixed costs of price adjustment and idiosyncratic shocks, is more consistent with this micro data. Nonetheless, ambiguity remains about the extent of nonneutrality that can be attributed to costly price adjustment. Using a model that ...
Working Paper
Do Phillips Curves Conditionally Help to Forecast Inflation?
This paper reexamines the forecasting ability of Phillips curves from both an unconditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our univariate forecasting models. Significantly, we also find conditional inferiority, with some exceptions. When we do find improvement, it is asymmetric - Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. Any improvement we find, ...
Journal Article
Rational expectations business cycle models: a survey
Development of rational expectations models of the business cycle has been the central issue in macroeconomics over the last 15 years. The postulate that expectations are rational imposes considerable discipline on business cycle analysis. In this essay we review the current literature on rational expectations models of business cycles with specific attention focused on the extent to which the rational expectations perspective has generated a new understanding of economic fluctuations.
Working Paper
The effects of fiscal policy in a neoclassical growth model
This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government is constrained from using lump sum taxes for achieving intertemporal budget balance. The ratio of debt to gnp, therefore, has consequences for the future choices of government spending and distortionary taxation and hence affects real economic activity. Further modeling fiscal policy in this way generates results that differ substantially from those in standard stochastic models where lump sum taxes are used for budget balance. The modeling ...
Journal Article
Was the disinflation of the early 1980's anticipated?