1,721,323 research outputs found
Monetary policy rules, macroeconomic stability and inflation: a view from the trenches
Full text linkI estimate a forward-looking monetary policy reaction function for the Federal Reserve for the periods before and after Paul Volcker's appointment as Chairman in 1979, using information that was available to the FOMC in real time from 1966 to 1995. The results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods. This contradicts the hypothesis, based on analysis with ex post constructed data, that the instability of the Great Inflation was the result of weak FOMC policy responses to expected inflation. A difference is that prior to Volcker's appointment, policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious. Drawing on contemporaneous accounts of FOMC policy, I discuss the implications of the findings for alternative explanations of the Great Inflation and the improvement in macroeconomic stability since then JEL Classification: E3, E52, E58Greenbook forecasts, monetary policy rules, real-time data, stagflation
The Euro Area Crisis: Politics over Economics
No full textThis paper explores the dominant role of politics in decisions made by euro area governments during the crisis. Decisions that appear to have been driven by local political considerations to the detriment of the euro area as a whole are discussed. The domination of politics over economics has led to crisis mismanagement. The underlying cause of tension is identified as a misalignment of political incentives. Member state governments tend to defend their own interests in a noncooperative manner. This has magnified the costs of the crisis and has resulted in an unbalanced and divisive incidence of the costs across the euro area. The example of Cyprus is discussed, where political decisions resulted in a transfer of about half of 2013 GDP from the island to cover losses elsewhere. In the absence of a federal government, no institution can adequately defend the interests of the euro area as a whole. European institutions appear weak and incapable of defending European principles and the proper functioning of the euro. Political reform is needed to sustain the euro but this is unlikely to pass the political feasibility test with the current governments of Europe
Assessing Monetary Policy in Norway
Full text linkWe evaluate the policy of flexible inflation targeting implemented by the Norges Bank since March 2001. We discuss the reasons why the real interest rates are significantly higher in Norway than in the rest of Europe. Finally we propose some institutional changes that can improve the policy making process.
The New Economy and the Challenges for Macroeconomic Policy
Full text linkThe accelerated introduction of information and communications technology into the economy has created numerous challenges for policymakers. This paper describes this New Economy and then proceeds to examine difficulties created for policymakers. The increased flexibility of the new economy argues against trying to use fiscal policy for stabilization and creates both immediate and long-term difficulties for monetary policy. Immediate difficulties concern the problems associated with estimating potential output when the productivity trend is shifting. During periods of transition, it is extremely difficult to distinguish permanent from transitory shifts in output growth, and adjust policy correctly. In the long-term, central banks must face the prospect of a significant decline in the demand for their liabilities, and a resulting loss of their primary interest rate policy instrument. The disappearance of the demand for central bank money for interbank settlement seems very unlikely, and so this concern seems unwarranted.
FOMC consensus forecasts
Full text linkIn November 2007, the Federal Open Market Committee (FOMC) announced a change in the way it communicates its view of the economic outlook: It increased the frequency of its forecasts from two to four times per year, and it increased the length of the forecasting horizon from two to three years. The FOMC does not release the individual members' forecasts or standard measures of consensus such as the mean or median. Rather, it continues to release the forecast information as a range of forecasts, both the full range between the high and the low and a central tendency that omits the extreme values. This paper uses individual forecaster data from the Survey of Professional Forecasters (SPF) to mimic the FOMC's method for creating their central tendency. The authors show that the midpoint of the central tendency of the SPF is a reliable measure of the consensus, suggesting that the FOMC reporting method is also a reliable measure of consensus. For the dates when both are available, the authors also compare the relative forecast accuracy of the FOMC and SPF consensus forecasts for output growth and inflation. Overall, the differences in forecast accuracy are too small to be statistically significant.Federal Open Market Committee ; Monetary policy
Simple and robust rules for monetary policy
Full text linkThis paper focuses on simple normative rules for monetary policy which central banks can use to guide their interest rate decisions. Such rules were first derived from research on empirical monetary models with rational expectations and sticky prices built in the 1970s and 1980s. During the past two decades substantial progress has been made in establishing that such rules are robust. They perform well with a variety of newer and more rigorous models and policy evaluation methods. Simple rules are also frequently more robust than fully optimal rules. Important progress has also been made in understanding how to adjust simple rules to deal with measurement error and expectations. Moreover, historical experience has shown that simple rules can work well in the real world in that macroeconomic performance has been better when central bank decisions were described by such rules. The recent financial crisis has not changed these conclusions, but it has stimulated important research on how policy rules should deal with asset bubbles and the zero bound on interest rates. Going forward the crisis has drawn attention to the importance of research on international monetary issues and on the implications of discretionary deviations from policy rules.Monetary policy
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
How do data revisions affect the evaluation and conduct of monetary policy?
Full text linkMany economic data series are revised as more comprehensive information becomes available and as methodologies improve. Even the latest available data are subject to uncertainty, and at some point historical data may be replaced by more accurately measured observations. Because monetary policy decisions are made with an eye to the state of the economy, data uncertainty complicates the evaluation and conduct of monetary policy. ; Kozicki focuses on revisions to data that policymakers often examine when assessing monetary policy options. While other studies have looked at the impact of data revisions on monetary policy, this article is the first to examine the policy implications of revisions in two widely used benchmarks of resource utilization—the Congressional Budget Office (CBO) estimates of potential output and the natural rate of unemployment. The article is also the first to consider how data revisions affect policy decisions through changes in estimates of the equilibrium real rate of interest. ; Kozicki finds that revisions to data can lead to policy regret—instances when revised data may suggest alternative actions would have been preferable to those taken. Based on this finding and analysis in other studies, she recommends making policy less sensitive to economic indicators that are subject to large revisions.Monetary policy
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