Pub Date : 2020-04-30DOI: 10.4324/9780429270949-75
Glenn D. Rudebusch
In the postwar period, the ultimate objectives of the Federal Reserve–namely full employment and stable prices–have remained unchanged; however, the Fed has modi ed its operational and intermediate objectives for monetary policy several times in response to changes in the economic environment. For example, in 1970, the Federal Reserve formally adopted monetary targets in an attempt to use an intermediate nominal objective or anchor to resist slowly rising in ation. Furthermore, from 1979 through the early 1980s, a narrow monetary reserve aggregate was ostensibly used as the operational instrument of policy. This period, however, was the high-water mark for money. FRBSF Economic Letter
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Pub Date : 2020-04-30DOI: 10.4324/9780429270949-12
T. Zha
A policy action by the Federal Reserve consists of using any one of various instruments, such as the federal funds rate and different measures of money, to pursue its multiple objectives. Because of long and variable lags in the effects of policy actions, the process of anticipating the future is indispensable in formulating sound monetary policy. For the same reason, projecting policy effects accurately is a challenging task. An essential step is to develop good forecasting models. ; This article presents a forecasting model that seems to overcome conceptual and empirical difficulties encountered in other models and promises to provide policymakers with a more useful tool for anticipating policy effects. For clarity, the author concentrates on changes in the federal funds rate and on only one of the Fed's objectives - low and stable inflation. The model introduces new techniques that offer two distinctive advantages. One is the ability to forecast the values of key macroeconomic variables such as inflation beyond a period over which these values are known. The other is the model's explicit structure that allows empirically coherent ways to assess the uncertainty of forecasts.
{"title":"A Dynamic Multivariate Model for Use in Formulating Policy","authors":"T. Zha","doi":"10.4324/9780429270949-12","DOIUrl":"https://doi.org/10.4324/9780429270949-12","url":null,"abstract":"A policy action by the Federal Reserve consists of using any one of various instruments, such as the federal funds rate and different measures of money, to pursue its multiple objectives. Because of long and variable lags in the effects of policy actions, the process of anticipating the future is indispensable in formulating sound monetary policy. For the same reason, projecting policy effects accurately is a challenging task. An essential step is to develop good forecasting models. ; This article presents a forecasting model that seems to overcome conceptual and empirical difficulties encountered in other models and promises to provide policymakers with a more useful tool for anticipating policy effects. For clarity, the author concentrates on changes in the federal funds rate and on only one of the Fed's objectives - low and stable inflation. The model introduces new techniques that offer two distinctive advantages. One is the ability to forecast the values of key macroeconomic variables such as inflation beyond a period over which these values are known. The other is the model's explicit structure that allows empirically coherent ways to assess the uncertainty of forecasts.","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116799408","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article is a reprint of a lecture - given in honor of Homer Jones - that examines the causes of the Long Boom. John B. Taylor defines the Long Boom from 1982 to the present - as the period of time in which the United States has known unprecedented economic stability. This period includes the first and second-longest peacetime expansions in American history, separated by one relatively short and mild national recession. Taylor explores the internal changes in the structure of our economy, as well as external shocks and economic policy. He also discusses the reasons for the change in monetary policy. Monetary policy, he concludes, deserves most of the credit for the Long Boom because current policymakers have been more aggressive in responding to inflation, thereby keeping inflation low and recessions relatively rare. Taylor shows that the type of monetary research encouraged by Homer Jones at the Federal Reserve Bank of St. Louis placed renewed emphasis on the difference between the real interest rate and the nominal interest rate. This type of research sought numerical guidelines for using monetary statistics to make policy, and was responsible - at least in part - for changing monetary policy.
{"title":"Monetary Policy and the Long Boom","authors":"John B. Taylor","doi":"10.20955/R.80.3-12","DOIUrl":"https://doi.org/10.20955/R.80.3-12","url":null,"abstract":"This article is a reprint of a lecture - given in honor of Homer Jones - that examines the causes of the Long Boom. John B. Taylor defines the Long Boom from 1982 to the present - as the period of time in which the United States has known unprecedented economic stability. This period includes the first and second-longest peacetime expansions in American history, separated by one relatively short and mild national recession. Taylor explores the internal changes in the structure of our economy, as well as external shocks and economic policy. He also discusses the reasons for the change in monetary policy. Monetary policy, he concludes, deserves most of the credit for the Long Boom because current policymakers have been more aggressive in responding to inflation, thereby keeping inflation low and recessions relatively rare. Taylor shows that the type of monetary research encouraged by Homer Jones at the Federal Reserve Bank of St. Louis placed renewed emphasis on the difference between the real interest rate and the nominal interest rate. This type of research sought numerical guidelines for using monetary statistics to make policy, and was responsible - at least in part - for changing monetary policy.","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129994001","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 1998-01-01DOI: 10.4324/9780429270949-33
Owen F. Humpage
Each day, more than $1.2 trillion worth of foreign exchange changes hands around the globe, an amount that far exceeds the daily value of world trade. Approximately 83 percent of these transactions involve U.S. dollars, but not all involve U.S. citizens.
{"title":"A Hitchhiker’s Guide to Understanding Exchange Rates","authors":"Owen F. Humpage","doi":"10.4324/9780429270949-33","DOIUrl":"https://doi.org/10.4324/9780429270949-33","url":null,"abstract":"Each day, more than $1.2 trillion worth of foreign exchange changes hands around the globe, an amount that far exceeds the daily value of world trade. Approximately 83 percent of these transactions involve U.S. dollars, but not all involve U.S. citizens.","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"415 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122996966","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Inflation, Growth, and Financial Intermediation","authors":"V. Chari, L. Jones, R. Manuelli","doi":"10.20955/R.78.41-58","DOIUrl":"https://doi.org/10.20955/R.78.41-58","url":null,"abstract":"","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"395 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1996-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127728505","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
country mean of inflation exceeded the median for each decade. This property reflects the skewing of inflation rates to the right, as shown in Figure 1. That is, there are a number of outliers with positive inflation rates of large magnitude, but none with negative inflation rates of high magnitude. Because this skewness increased in the 1980s, the mean inflation rate rose from the 1970s to the 1980s, although the median rate declined.
{"title":"Inflation and Growth","authors":"R. Barro","doi":"10.20955/R.78.153-169","DOIUrl":"https://doi.org/10.20955/R.78.153-169","url":null,"abstract":"country mean of inflation exceeded the median for each decade. This property reflects the skewing of inflation rates to the right, as shown in Figure 1. That is, there are a number of outliers with positive inflation rates of large magnitude, but none with negative inflation rates of high magnitude. Because this skewness increased in the 1980s, the mean inflation rate rose from the 1970s to the 1980s, although the median rate declined.","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"10 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1996-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120893876","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This explanation has been articulated in a number of recent papers. See, for example, Azariadis and Smith (forthcoming), Boyd and Smith (forthcoming), and Schreft and Smith (forthcoming and 1994). A consensus among economists seems to be that high rates of inflation cause " problems, " not just for some individuals, but for aggregate economic performance. There is much less agreement about what these problems are and how they arise. We propose to explain how inflation adversely affects an economy by arguing that high inflation rates tend to exacerbate a number of financial market frictions. In doing so, inflation interferes with the provision of investment capital, as well as its allocation. 1 Such interference is then detrimental to long-run capital formation and to real activity. Moreover, high enough rates of inflation are typically accompanied by highly variable inflation and by variability in rates of return to saving on all kinds of financial instruments. We argue that, by exacerbating various financial market frictions, high enough rates of inflation force investors' returns to display this kind of variability. It seems difficult then to prevent the resulting variability in returns from being transmitted into real activity. Unfortunately, for our understanding of these phenomena, the effects of permanent increases in the inflation rate for long-run activity seem to be quite complicated and to depend strongly on the initial level of the inflation rate. For example, Bullard and Keating (forthcoming) find that a permanent, policy-induced increase in the rate of inflation raises the long-run level of real activity for economies whose initial rate of inflation is relatively low. For economies experiencing moderate initial rates of inflation, the same kind of change in inflation seems to have no significant effect on long-run real activity. However, for economies whose initial inflation rates are fairly high, further increases in inflation significantly reduce the long-run level of output. Any successful theory of how inflation affects real activity must account for these nonmonotonicities. Along the same lines, Bruno and Easterly (1995) demonstrate that a number of economies have experienced sustained inflations of 20 percent to 30 percent without suffering any apparently major adverse consequences. However, once the rate of inflation exceeds some critical level (which Bruno and Easterly estimate to be about 40 percent), significant declines occur in the level of real activity. This seems consistent with the results of Bullard and Keating. Evidence is also accumulating that inflation adversely affects …
这一解释在最近的一些论文中得到了阐明。例如，参见Azariadis and Smith(即将出版)，Boyd and Smith(即将出版)，以及Schreft and Smith(即将出版和1994年出版)。经济学家的共识似乎是，高通胀率不仅会给某些人带来“问题”，还会给整体经济表现带来“问题”。对于这些问题是什么以及它们是如何产生的，人们的看法要少得多。我们建议解释通货膨胀对经济的负面影响，认为高通货膨胀率往往会加剧一些金融市场摩擦。在这样做的过程中，通货膨胀干扰了投资资本的提供及其配置。这种干预对长期资本形成和实际活动是有害的。此外，足够高的通货膨胀率通常伴随着高度可变的通货膨胀率和各种金融工具的储蓄回报率的可变性。我们认为，通过加剧各种金融市场摩擦，足够高的通胀率迫使投资者的回报表现出这种可变性。因此，似乎很难防止由此产生的回报可变性转化为实际活动。不幸的是，从我们对这些现象的理解来看，通货膨胀率的持续上升对长期经济活动的影响似乎相当复杂，而且在很大程度上取决于通货膨胀率的初始水平。例如，布拉德和基廷(即将出版)发现，对于初始通胀率相对较低的经济体来说，由政策导致的通货膨胀率的永久性上升，会提高其长期实际活动水平。对于初始通胀率适中的经济体，同样的通胀变化似乎对长期实际经济活动没有显著影响。然而，对于初始通货膨胀率相当高的经济体，通货膨胀的进一步增加会显著降低长期产出水平。任何成功的关于通货膨胀如何影响实际经济活动的理论，都必须考虑到这些非单调性。沿着同样的思路，布鲁诺和伊斯特利(1995)证明，许多经济体经历了20%至30%的持续通货膨胀，而没有遭受任何明显的重大不利后果。然而，一旦通货膨胀率超过某个临界水平(布鲁诺和伊斯特利估计约为40%)，实际活动水平就会出现显著下降。这似乎与布拉德和基廷的结果一致。越来越多的证据表明，通货膨胀对……
{"title":"Inflation, Financial Markets, and Capital Formation","authors":"Sangmok Choi, B. Smith, J. Boyd","doi":"10.20955/R.78.9-35","DOIUrl":"https://doi.org/10.20955/R.78.9-35","url":null,"abstract":"This explanation has been articulated in a number of recent papers. See, for example, Azariadis and Smith (forthcoming), Boyd and Smith (forthcoming), and Schreft and Smith (forthcoming and 1994). A consensus among economists seems to be that high rates of inflation cause \" problems, \" not just for some individuals, but for aggregate economic performance. There is much less agreement about what these problems are and how they arise. We propose to explain how inflation adversely affects an economy by arguing that high inflation rates tend to exacerbate a number of financial market frictions. In doing so, inflation interferes with the provision of investment capital, as well as its allocation. 1 Such interference is then detrimental to long-run capital formation and to real activity. Moreover, high enough rates of inflation are typically accompanied by highly variable inflation and by variability in rates of return to saving on all kinds of financial instruments. We argue that, by exacerbating various financial market frictions, high enough rates of inflation force investors' returns to display this kind of variability. It seems difficult then to prevent the resulting variability in returns from being transmitted into real activity. Unfortunately, for our understanding of these phenomena, the effects of permanent increases in the inflation rate for long-run activity seem to be quite complicated and to depend strongly on the initial level of the inflation rate. For example, Bullard and Keating (forthcoming) find that a permanent, policy-induced increase in the rate of inflation raises the long-run level of real activity for economies whose initial rate of inflation is relatively low. For economies experiencing moderate initial rates of inflation, the same kind of change in inflation seems to have no significant effect on long-run real activity. However, for economies whose initial inflation rates are fairly high, further increases in inflation significantly reduce the long-run level of output. Any successful theory of how inflation affects real activity must account for these nonmonotonicities. Along the same lines, Bruno and Easterly (1995) demonstrate that a number of economies have experienced sustained inflations of 20 percent to 30 percent without suffering any apparently major adverse consequences. However, once the rate of inflation exceeds some critical level (which Bruno and Easterly estimate to be about 40 percent), significant declines occur in the level of real activity. This seems consistent with the results of Bullard and Keating. Evidence is also accumulating that inflation adversely affects …","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"128 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1996-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124439239","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 1996-03-15DOI: 10.4324/9780429270949-68
Stephen G. Cecchetti
An outline of the considerable information requirements faced by monetary policymakers, and an examination of the data to see what we actually know and how well we know it. The author's primary conclusion is that the deficiencies of our forecasting ability create uncertainty that leads to cautious policymaking.
{"title":"Practical Issues in Monetary Policy Targeting","authors":"Stephen G. Cecchetti","doi":"10.4324/9780429270949-68","DOIUrl":"https://doi.org/10.4324/9780429270949-68","url":null,"abstract":"An outline of the considerable information requirements faced by monetary policymakers, and an examination of the data to see what we actually know and how well we know it. The author's primary conclusion is that the deficiencies of our forecasting ability create uncertainty that leads to cautious policymaking.","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1996-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128692960","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 1994-03-04DOI: 10.4324/9780429270949-31
R. Parry
{"title":"Monetary Policy in the 1990s","authors":"R. Parry","doi":"10.4324/9780429270949-31","DOIUrl":"https://doi.org/10.4324/9780429270949-31","url":null,"abstract":"","PeriodicalId":307845,"journal":{"name":"Handbook of Monetary Policy","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1994-03-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126723471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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