Research Paper (pdf): The Devolution of Federal Reserve Monetary Policy Strategy, 2012-24
(Revised May 2024) The Federal Open Market Committee's 2012 Statement on Longer-Run Goals and Monetary Policy Strategy interprets the Federal Reserve's statutory dual mandate in light of the natural rate hypothesis and the New Keynesian "divine coincidence." That statement sets a quantitative objective for inflation but not for unemployment, acknowledges that the goals of price stability and maximum employment are generally complementary, and prescribes a balanced policy response in cases where that divine coincidence breaks down. Less than one year after releasing the 2012 Statement, however, the FOMC began deviating from these principles, and the Committee's 2020 amendments to its Strategy Statement appear to reflect, instead, the older view that the Phillips curve presents the central bank with an exploitable trade-off between inflation and unemployment. To bring its monetary policy strategy back in line with the lessons of contemporary macroeconomic theory, the FOMC could simply abandon the 2020 amendments and return to its original framework outlined in 2012. Alternatively, the Committee could eliminate the asymmetries and ambiguities that prevent its flexible average inflation targeting strategy from having the desirable properties of a true price level targeting scheme.

Research Paper (pdf): Money and Business Cycles: A Historical Comparison
(Revised June 2023) A Bayesian vector autoregression, estimated with interwar and postwar US data, is used to reassess and extend Friedman and Schwartz's historical analysis of money and business cycles. The results show that while aggregate demand and supply disturbances play important roles as well, monetary policy shocks drive much of the volatility in inflation and output during both sample periods. And while monetary policy appears to have become more active in stabilizing inflation and output in the postwar compared to the interwar years, its shifting stance is reflected consistently by changes in money growth as well as interest rates. In more ways than not, postwar business cycles resemble their interwar counterparts.

Research Paper (pdf): Money Growth and Inflation in the Euro Area, United Kingdom, and United States: Measurement Issues and Recent Results
(Revised May 2024) This paper identifies several ways in which "measurement matters" in detecting quantity-theoretic linkages between money growth and inflation in recent data from the Euro Area, United Kingdom, and United States. Elaborating on the "Barnett critique," it uses Divisia aggregates in place of their simple-sum counterparts to gauge the effects that monetary expansion or contraction is having on inflationary pressures. It also uses one-sided time series filtering techniques to track, in real time, slowly-shifting trends in velocity and real economic growth that would otherwise weaken the statistical money growth-inflation relationship. Third, it documents how measures of inflation based on GDP were distorted severely, especially in the EA and UK, during the 2020 economic closures. Using measures based on consumption instead, estimates from the P-star model confirm that changes in money growth have strong predictive power for subsequent movements in inflation.

Research Paper (pdf): Money in the Search for a Nominal Anchor
(Revised August 2024) From the very start of its fifty-year history, the Shadow Open Market Committee advocated for a monetary policy strategy focused on controlling inflation. With time, the rationale for price stability as the principal focus of monetary policy came to be accepted more widely by academic economists and Federal Reserve officials as well. The SOMC also consistently favored an operational approach involving the use of the monetary base as the policy instrument and a broader monetary aggregate as an intermediate target. These features of SOMC strategy, by contrast, have never gained widespread support among academics or at the Fed. This paper outlines the SOMC's preferred approach, focusing on how the Committee's money-based strategy and arguments for it evolved over time. It then shows that these arguments still apply with force today.

Research Paper (pdf): Review of Getting Monetary Policy Back on Track, Edited by Michael D. Bordo, John H. Cochrane, and John B. Taylor
(Revised June 2024) Prepared for The Independent Review.

Research Paper (pdf): Targeting Nominal GDP Through Monetary Control
(Revised March 2024) This Policy Brief proposes that, at its next major review planned for 2024-25, the Fed replace the operational strategy it uses presently -- flexible average inflation targeting -- with an alternative that targets nominal GDP instead. The Brief argues, more specifically, that the Fed should target nominal GDP using its ability to influence broad measures of the money supply such as M2 or to control directly the monetary base. This approach would allow the Fed to pursue its dual mandate, irrespective of whether or not interest rates are constrained by their zero lower bound.

Research Paper (pdf): The Transmission of Monetary Policy Shocks Through the Markets for Reserves and Money
(Revised December 2023) (co-authored with Michael T. Belongia) This paper identifies supply and demand curves for bank reserves and a Divisia aggregate of monetary services within a structural vector autoregressive time-series model. Estimated over four sample periods spanning 1967 through 2020, the model illustrates how monetary policy actions can be interpreted with reference to their initial impact on bank reserves and the federal funds rate and their subsequent effects on Divisia money, nominal consumption spending, the aggregate nominal price level, and the unemployment rate. Model estimates attribute strong inflationary effects to monetary policy in the late 1960s and 1970s and also show that changes in the supply of reserves associated with the Fed's large-scale asset purchases since 2008 worked, as intended, to offset deflationary pressures and reduce unemployment. The model describes a much richer monetary policy process than one focused on interest rates alone.

Research Paper (pdf): Update on Monetary Conditions: Spring 2024
(Revised March 2024) Position Paper prepared for the April 2024 meeting of the Shadow Open Market Committee.

Research Paper (pdf): US Monetary Policy, 2020-23: Putting the Quantity Theory to the Test
(Revised June 2023) Dramatic fluctuations in US money growth since 2020 provide valuable new data with which to test the quantity theory of money. Consistent with the theory, the P-star model -- a small-scale econometric model with quantity-theoretic foundations -- associates the 2020 surge in money growth with the persistent inflation that has followed. In light of the outright monetary contraction observed since 2022, however, the same model suggests strongly that the Federal Reserve should now pause before implementing further interest rate increases, while past policy actions have their full effect in bringing inflation back down. More generally, with reference to the P-star model and to the quantity theory on which it is based, the Fed can avoid an unwelcome return to the stop-go policy patterns that contributed to macroeconomic volatility and rising inflation throughout the 1970s.

Published Papers

Older Working Papers and Federal Reserve Publications