Finance Basic To Advance Level Knowledge

The Fed claims it has a symmetric two percent inflation target. From  its 2017 and 2018  Statements on Longer Run Goals and Monetary Policy , the FOMC states: The Committee reaffirms its judgment that inflation at the rate of 2 percent... is most consistent over the longer run with the Federal Reserve’s statutory mandate. The Committee would be concerned if inflation were running persistently above or below this objective. Communicating this symmetric i nflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored... Numerous Fed officials have repeated this point as well. They too  see the inflation target as a symmetric one , an understanding that allows for an occasional inflation overshoot. Despite these claims, however, the Fed has persistently undershoot its inflation target. If one acknowledges the Fed implicitly targeted two percent long before the explicit target was adopted in 2012, then the undershooting has ...

Macro Musings has now hit its 100th episode. It was a great show with Heather Long, Ryan Avent, and Cardiff Garcia where we look back at the past decade and look ahead to the next one. Below are a few pictures from the show. Thanks to Patrick Horan who has been a great sound engineer for most of the show. It could not have happened without him. Take a listen!

Some assorted macro musings: New NGDP Paper My colleague Scott Sumner and Ethan Roberts have a new primer on NGDPLT . It is a very accessible introduction to the topic, but one that also gets into NGDPLT futures targeting. Check it out. JEC Report on the Slow Recovery The Joint Economic Committee of Congress has a new report where, among other things, it lays out a monetary explanation for the slow recovery.  A key excerpt on why QE did not create a robust recovery (page 61): The Fed was clear from the outset that it would undo its LSAPs eventually (i.e., remove from circulation the money it created in the future). The temporary nature of the policy discouraged banks from issuing more long-term loans. Alternatively, as economist Tim Duy pointed out during the inception of the Fed’s first LSAP program:  " Pay close attention to Bernanke’s insistence that the Fed’s liquidity programs are        intended to be unwound. If policymakers truly i...

Paul Krugman looks back on the past twenty years  of macroeconomic policy and finds that his 1998 paper was more prescient than he or anyone could have imagined. Back then many observers assumed that central bankers--particularly those at the Bank of Japan--need only increase the monetary base to increase the price level. It was that simple. Ken Rogoff, for example, said the following in commenting on Krugman's 1998 article: No one should seriously believe that the BOJ would face any significant technical problems in inflating if it puts it mind to the matter, liquidity trap or no. For example, one can feel quite confident that if the BOJ were to issue a 25 percent increase in the current supply and use it to buy back 4 percent of government nominal debt, inflationary expectations would rise. Krugman disagreed in his 1998 paper. He showed, using a New Keynesian model, that it was more complicated than many imagined. It depended on whether the monetary injections were expe...

Jay Powell went to Capitol Hill today for his first congressional testimony  as Fed Chair. In addition, he submitted the Federal Reserve's annual Monetary Policy Report to Congress.  A lot of ground was covered in his testimony, follow-up questions, and in the report. Here, I want to highlight one very interesting and potentially significant part of his testimony. And that is Jay Powell's endorsement of monetary policy rules. At the end of his written testimony, Jay Powell had this to say: In evaluating the stance of monetary policy, the FOMC routinely consults monetary policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. Personally, I find these rule prescriptions helpful. Careful judgments are required about the measurement of the variables used, as well as about the implications of the many issues these rules do not take into account. I would like to note that this Monetary Policy Report provides furth...

Some assorted macro musings from the week A Monetary Correction Ramesh Ponnuru and I have a new article in the National Review where we make the contrarian case that monetary policy was actually tight over the past decade relative to its own inflation target and past trends in the growth of aggregate nominal spending. We note the following: The economy seems largely to have adjusted to the new, lower pace of spending growth. The problem now is not that monetary policy is erring on the side of tightness and thus holding back the economy’s potential. It’s that the Fed’s apparent bias against letting spending and inflation drift higher, even temporarily, makes it more likely that the next economic downturn will again be severe and the next recovery will again be sluggish. As evidence for our claim on a trend decline in the growth of nominal spending, we show the following figure: Asymmetric Inflation Fears I often chastise the Fed for effectively having an asymmetr...

Here is a great summer program for advanced undergraduate or beginning graduate student that are interested in monetary economics. Scott Sumner and I will be presenters and St. Louis Fed President Jim Bullard will be the keynote speaker. Your travel and lodging will be covered, but you need to apply by January 31.  Alternative Money University (AMU) is an academic workshop for advanced undergraduate and beginning graduate students with a particular interest in monetary economics. During three days of intensive seminars, students will learn from leading scholars in the field about subjects not typically addressed in undergraduate or graduate economics courses — including topics in monetary history, the theory and practice of monetary policy, and the workings of unconventional monetary arrangements. Between them, the subjects covered and the seminar-style of the sessions are intended to provide students with a solid foundation upon which to build their own, future contributions t...