Creator: Smith, Bruce D., d. 2002. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 221 Abstract:
This paper considers a view commonly associated with the "quantity theory of money": that banks should face 100 percent reserve requirements. It argues first that the objectives of the quantity theorists' proposals were more than merely price level stability, and that in fact, price level stability was at most a secondary objective of their proposals. Second, it argues that these theorists had a world with distortions in mind with respect to their proposals. These are present in a special setting examined that (a) supports the imposition of 100 percent reserve requirements (on the basis of an unconstrained Pareto criterion), and (b) supports the view that these restrictions stabilize the price level and make its movements more "predictable."
Keyword: Loans, Quantity-theory, Quantity theory, Price level stability, Banks, and Lending Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and G28 - Financial institutions and services - Government policy and regulation
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 481 Abstract:
This paper investigates the effects of changes in a country's monetary policies on its economy and the welfare of its citizens and those of other countries. Each country is populated by two-period lived overlapping agents who reside in either a home service sector or a world-traded good sector. Policy effects are transmitted through changes in the real interest rate, relative prices, and price levels. Welfare effects are sometimes dominated by relative price movements and can thus be opposite of those found in one-good models. Simulation of dynamic paths also reveals that welfare effects for some types of agents reverse between those born in immediate post-shock periods and those born later.
Keyword: Real interest rates, Relative prices, Exchange rates, Prices, and Monetary policy Subject (JEL): E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy, F31 - International finance - Foreign exchange, and E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation
Creator: Rotemberg, Julio. Series: Lucas expectations anniversary conference Abstract:
I show that a simple sticky price model based on Rotemberg (1982) is consistent with a variety of facts concerning the correlation of prices, hours and output. In particular, I show that it is consistent with a negative correlation between the detrended levels of output and prices when the Beveridge-Nelson method is used to detrend both the price and output data. Such a correlation, i.e.,a negative correlation between the predictable movements in output and the predictable movements in prices is present (and very strong) in U.S. data. Consistent with the model, this correlation is stronger than correlations between prices and hours of work. I also study the size of the predictable price movements that are associated with predictable output movements as well as the degree to which there are predictable movements in monetary aggregates associated with predictable movements in output. These facts are used to shed light on the degree to which the Federal Reserve has pursued a policy designed to stabilize expected inflation.
Keyword: Monetary policy, Output, Inflation, Federal Reserve, and Prices Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, E23 - Macroeconomics : Consumption, saving, production, employment, and investment - Production, and E50 - Monetary policy, central banking, and the supply of money and credit - General
Creator: Edge, Rochelle Mary, 1971- and Rudd, Jeremy Bay, 1970- Series: Joint commitee on business and financial analysis Abstract:
We add a nominal tax system to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium. When depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium. These results have obvious implications for assessing the historical conduct of monetary policy.
Keyword: Monetary policy, Business cycle, Cycle, Interest, Inflation, Policy, Prices, Monetary, Rational expectation, and Tax Subject (JEL): E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E12 - General aggregative models - Keynes ; Keynesian ; Post-Keynesian, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Whiteman, Charles H. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 143 Keyword: Quantity theory, Lucas model, Stochastic economy, and Inflation Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and E40 - Money and interest rates - General
Creator: Geweke, John. Series: New methods in business cycle research Abstract:
A simple stochastic model of the firm is constructed in which a dynamic monopolist who maximizes a discounted profits stream subject to labor adjustment costs and given factor prices sets output price as a distributed lag of past wages and input prices. If the observed relation of wages and prices in manufacturing arises solely from this behavior then wages and input prices are exogenous with respect to output prices. In tests using quarterly and monthly series for the straight time wage, an index of raw materials prices and the wholesale price index for manufacturing and its durable and nondurable subsectors this hypothesis cannot be refuted for the period 1955:1 to 1971:11. During the period 1926:1 to 1940:11, however, symmetrically opposite behavior is observed manufacturing wholesale prices are exogenous with respect to the wage rate, a relation which can arise if dynamically monopsonistic firms compete in product markets. Neither structural relation has withstood direct wage and price controls.
Keyword: Wages, Manufacturing, Labor, Wholesale, and Prices Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, L60 - Industry Studies: Manufacturing: General, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Backus, David. and Kehoe, Patrick J. Series: Conference on economics and politics Abstract:
We document properties of business cycles in ten countries over the last hundred years, contrasting the behavior of real quantities with that of the price level and the stock of money. Although the magnitude of output fluctuations has varied across countries and periods, relations among variables have been remarkably uniform. Consumption has generally been about as variable as output, and investment substantially more variable, and both have been strongly procydical. The trade balance has generally been countercyclical. The exception to this regularity is government purchases, which exhibit no systematic cyclical tendency. With respect to the size of output fluctuations, standard deviations are largest between the two world wars. In some countries (notably Australia and Canada) they are substantially larger prior to World War I than after World War II, but in others (notably Japan and the United Kingdom) there is little difference between these periods. Properties of price levels, in contrast, exhibit striking differences between periods. Inflation rates are more persistent after World War II than before, and price level fluctuations are typically procyclical before World War II, countercyclical afterward. We find no general tendency toward increased persistence in money growth rates, but find that fluctuations in money are less highly correlated with output in the postwar period.
Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles