Corporate Tax Reform: Potential Gains at a Price to Some
Corporate tax reform has become a high-profile issue amid fears that firms are increasingly taking their headquarters and production facilities offshore and booking profits abroad. Adjustments to the tax system can help address these factors, though not without potentially introducing new issues.
The use and abuse of \"real-time\" data in economic forecasting
We distinguish between three different ways of using real-time data to estimate forecasting equations and argue that the most frequently used approach should generally be avoided. The point is illustrated with a model that uses monthly observations of industrial production, employment, and retail sales to predict real GDP growth. When the model is estimated using our preferred method, its out-of-sample forecasting performance is clearly superior to that obtained using conventional estimation, and compares favorably with that of the Blue-Chip consensus.
Assessing monetary accommodation: a simple empirical model of monetary policy and its implications for unemployment and inflation
This note suggests that household wealth growth and a long-forward interest rate can be used to construct a simple and convenient reference standard for assessing the current stance of monetary policy. It shows that the difference between the federal funds rate and this reference interest rate is a powerful predictor of the unemployment rate and inflation, producing real-time forecasts that are competitive with consensus-based forecasts from surveys of forecasting professionals. Moreover, one can understand past FOMC policy actions as efforts to adjust the stance of policy, so measured, in ...
Monetary Policy in Time of Pandemic
Some monetary policy strategies have greater potential than others to mitigate pandemic-related financial strains.
The 'Great Moderation' in output and employment volatility: an update
The reduced aggregate volatility that began in 1984 has continued into the new millennium.
Nominal GDP Outlook Suggests It's Time to End Monetary Accommodation
We argue that the policy response to COVID-19 has been broadly on track to date but that continued monetary accommodation (lowering interest rates or purchasing assets) risks fueling excessive inflation.
How robust are popular models of nominal frictions?
This paper analyzes three popular models of nominal price and wage frictions to determine which best fits post-war U.S. data. We construct a dynamic stochastic general equilibrium (DSGE) model and use maximum likelihood to estimate each model's parameters. Because previous research finds that the conduct of monetary policy and the behavior of inflation changed in the early 1980s, we examine two distinct sample periods. Using a Bayesian, pseudo-odds measure as a means for comparison, a sticky price and wage model with dynamic indexation best fits the data in the early-sample period, whereas ...
Optimal monetary policy in economies with \"sticky-information\" wages
In economies with sticky-information wage setting, policymakers legitimately give attention to output stabilization as well as price-level or inflation stabilization. Consistent with Kydland and Prescott (1990), trend deviations in prices are predicted to be negatively correlated with trend deviations in output. A variant of the Taylor rule is optimal if household consumption decisions are forward-looking. Interestingly, it is essential that policy not be made contingent on the most up-to-date estimates of potential output, potential-output growth, or the natural real interest rate. New ...
Do interest rates help predict inflation?
Accurate forecasts of inflation are important to policymakers and to individuals who must make decisions on the basis of expectations about the future purchasing power of the dollar. ; Recent research on forecasting inflation has shown that interest rates, by themselves, may provide useful information about future inflation. In this article, Kenneth M. Emery and Evan F. Koenig investigate whether interest rates contain information about future inflation beyond that found in traditional inflation-forecasting models. In other words, does adding interest rates to traditional inflation models ...