Search Results
Working Paper
Inflation risk and optimal monetary policy
This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path target reduces the variance of inflation by an order of magnitude more than it increases the variability of ...
Working Paper
A common model approach to macroeconomics: using panel data to reduce sampling error
Is there a common model inherent in macroeconomic data? Macroeconomic theory suggests that market economies of various nations should share many similar dynamic patterns; as a result, individual-country empirical models, for a wide variety of countries often include the same variables. Yet, empirical studies often find important roles for idiosyncratic shocks in the differing macroeconomic performance of countries. We use forecasting criteria to examine the macro-dynamic behavior of 15 OECD countries in terms of a small set of familiar, widely?used core economic variables, omitting ...
Working Paper
Endogenous money supply and the business cycle
An empirical and theoretical analysis of how changes in the monetary policy function affect the covariance structure of macroeconomic data.
Journal Article
Comparing inflation expectations of households and economists: is a little knowledge a dangerous thing?
A comparison of the performance of forecasts by economists (the Livingston survey), households (the Michigan Survey of Consumer Finances), and a time series model (ARIMA).
Working Paper
Endogenous money supply and the business cycle
This paper documents changes in the cyclical behavior of nominal data series that appear after 1979:Q3 when the Federal Reserve implemented a policy to lower the inflation rate. Such changes were not apparent in real variables. A business cycle model with impulses to technology and a role for money is used to show how alternative money supply rules are expected to affect observed business cycle facts. In this model, changes in the money supply rules have almost no effect on the cyclical behavior of real variables, yet have a significant impact on the cyclical nature of nominal variables. ...
Journal Article
What is potential GDP and why does it matter?
One look at recent Congressional Budget Office data shows how much estimates of the output gap can change as time passes.
Working Paper
Gold, fiat money and price stability
The classical gold standard has long been associated with long-run price stability. But short-run price variability led critics of the gold standard to propose reforms that look much like modern versions of price-path targeting. This paper uses a dynamic stochastic general equilibrium model to examine price dynamics under alternative policy regimes. In the model, an inflation target provides more short-run price stability than does the gold standard and, although it introduces a unit root into the price level, it leads to as much long-term price stability as does the gold standard for ...
Working Paper
Stability in a model of staggered-reserve accounting
An investigation of the nature of the dynamic process implied by staggered-reserve accounting, using a simple reduced-form model of the money-supply process.
Journal Article
FOMC forecast: is all the information in the central tendency?
Federal Reserve policymakers began reporting their economic forecasts to Congress in 1979. These forecasts are important because they indicate what the Federal Open Market Committee members think will be the likely consequence of their policies. The Fed reports both the range (high and low) of the individual policymaker?s forecasts and a truncated central tendency. The central tendency range omits outliers from both the top and the bottom of the full range. The author finds, generally, that the forecasts derived from the full range are at least as good as those derived from the central ...
Journal Article
Commodity futures index trading and spot oil prices
Politicians, market participants, and economists have argued about whether the increased trading induced by the growth of index funds over the past decade is a cause of high commodity prices.