Policymakers often use the output gap, a noisy signal of economic activity, as a guide for setting monetary policy. Noise in the data argues for policy caution. At the same time, the zero bound on nominal interest rates constrains the central bank’s ability to stimulate the economy during downturns. In such an environment, greater policy stimulus may be needed to stabilize the economy. Thus, no...

Executive Order 12866 requires agencies to examine the costs and benefits of both proposed and final regulatory actions. DOT administrations promulgate rules to enhance safety and protect the environment, for which the monetary value of preventing injuries and loss of life must be estimated among the benefits. Administrations also undertake investments and administrative actions that must be ev...

About two weeks prior to each Federal Open Market Committee (FOMC) meeting, the Federal Reserve releases a description of economic activity in a document called the Beige Book. By creating a quantitative index of these qualitative reports, we examine whether the content of the Beige Book affects asset prices. The results indicate that more positive Beige Book reports on economic growth are asso...

We introduce a money demand motive in a life-cycle portfolio choice model and estimate the structural parameters that can generate limited stock market participation and plausible holdings of money, bonds and stocks. The model predicts an increase in bond holdings over the life cycle, and a declining share of money in portfolios as wealth increases. Both predictions are consistent with the data...

perc.tamu.edu 1 hen the economy expands too quickly, the Federal Reserve may take steps to slow economic growth by raising short-term interest rates or selling Treasury bonds. Such measures, known as tight monetary policy, reduce the demand for money and curb inflation. However, if restrictive monetary policy actions are unanticipated, they may induce an asset shift from stocks to credit instru...

This survey sketches the broad landscape of the field of transaction costs measurement. It surveys the main research areas concerning transaction costs and offers a taxonomy: monetary and financial economics, Williamsonian transaction cost economics, the transaction sector, non-market transaction costs, environmental and ecological economics, institutions and economic growth, and the economics ...

In this comment, I extend Cavalcanti and Nosal’s (2010) framework to include the case of perfectly divisible money and unrestricted money holdings. I show that when trade takes place in Walrasian markets, counterfeits circulate and the Friedman rule is still optimal.

I n setting monetary policy in 1995, the Federal Reserve sought to promote sustainable economic growth and continued progress toward price stability. Toward those ends, the Federal Reserve adjusted the stance of monetary policy three times in 1995. In February, amid signs of increasing inflationary pressures, policy was tightened. In July and December, in response to signals of a slowing econom...

The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Kansas City or the Federal Reserve System. (1993a) suggested that the federal funds rate (r) should normatively (with qualifications) and could positively (at least in the previous 5 years) be explained by a simple equation: