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Working Paper
The effect of past and future economic fundamentals on spending and pricing behavior in the FRB/US macroeconomic model
This paper derives and presents mean leads and lags as well as patterns of relative importance weights implied by the PAC (polynomial-adjustment-cost) error-correction equations which form the core of the FRB/US model at the Federal Reserve Board. Relative importance weights measure the contributions of past and future expected changes in fundamentals on current decisions. These and the associated mean lags and leads can be considered summary measures of key dynamic properties of FRB/US. The spending equations are those for total consumption, durables consumption, business equipment, ...
Journal Article
Should the Fed take deliberate steps to deflate asset price bubbles?
On several occasions over the last few years, various economists and policymakers have expressed the opinion that the stock market was overvalued. They often compared the situation with the 1920s and warned that the U.S. economy was headed for a similar collapse. Some analysts also suggested that the Fed raise interest rates to slow the rate of "asset inflation," on the grounds that it would be better to burst a speculative bubble in its early stages than to let it develop and suffer the inevitable crash. This paper takes up the other side of the debate and argues that deliberate ...