Saturday , June 15 2019
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The author David Beckworth
David Beckworth
I am an associate professor of economics at Western Kentucky University, an adjunct scholar at the Cato Institute, and a former economist at the U.S. Department of Treasury.

Macro and Other Market Musings

This macroeconomics focused blog by David Beckworth, an associate Professor of Economics at Western Kentucky University, has recently launched an awesome podcast that features well-known economists, many of whom are featured on this list. David’s blog highlights is a great place to start to learn about specific economic events.

New Articles on NGDP Targeting

Just a quick note on a couple of my papers that recently got published. First,  Josh Hendrickson and I published in the Journal of Money, Credit, and Banking earlier this year with an article titled "Nominal GDP Targeting and the Taylor Rule on an Even Playing Field". Here is the abstract: Some economists advocate nominal GDP targeting as an alternative to the Taylor Rule. These arguments are largely based on the idea that nominal GDP targeting would require less knowledge on the part of...

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Is the Fed’s Floor System Beginning to Fold?

Last December, I participated in an AEI event where I made the case that the Fed's current floor operating system could collapse into a corridor operating system fairly soon. My argument was that even without a significant reduction in the supply of reserves, a large shift in the demand for reserves could be sufficient to move the Fed off the perfectly elastic or 'flat' portion of the bank reserve demand curve. The Fed, in other words, could have a relatively large balance sheet and still...

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Is Low Inflation Really a Mystery?

Over the past decade, inflation has persistently undershot the Fed's inflation target. The Fed's preferred measure of inflation, the core PCE deflator, has average 1.56 percent over this time compared to a target of 2 percent. The Fed officially begin inflation targeting in 2012, but was implicitly targeting 2 percent long before that time. So below-target inflation has been happening for close to a decade and for many observers it is a mystery. There have been a spate of articles...

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The FOMC Decision: A NGDP Perspective

The FOMC voted this week not to raise its target interest rate and signaled no additional hikes are planned for this year conditional on the outlook. This is a big change from last fall when the FOMC was talking up multiple rate hikes and dismissing concerns about the flattening yield curve. This 11th-hour conversion to a more dovish stance is a remarkable turnaround, one that some observers like Tim Duy are calling a "major break".  The change is being attributed to growth concerns and...

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Oh, the Horror of a Corridor!

The December 2018 FOMC minutes are out and reveal members continue to discuss the potential long-run frameworks for monetary policy implementation. Their discussion as to whether they should keep their current floor operating system or move to a corridor operating system can be illustrated using the figure below: The FOMC likes the floor system since it separates the size of the Fed's balance sheet from the setting of its target interest rate. This added flexibility is possible...

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How Close is the Fed to a Corridor System?

I recently participated in an AEI event that showcased George Selgin's new book on the Fed's floor  system. My role at the event was to comment, along with Bill Nelson, on George's book.  Readers of this blog will know I share many of George's concerns about the floor system that are outlined in his book and I would like to see the Fed move to a symmetric corridor system. The FOMC spent a good portion of its November meeting discussing this issue. My comments at the AEI event, however,...

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A Risk Sharing View of Monetary Policy

I have a new working paper titled "Better Risk Sharing Through Monetary Policy? The Financial Stability Case for a Nominal GDP Target". I presented this paper at the recent Cato Monetary Policy Conference.Here is the abstract: A series of papers have shown that a monetary regime targeting nominal GDP (NGDP) can reproduce the distribution of risk that would exist if there were widespread use of state contingentdebt securities (Koenig, 2013; Sheedy, 2014; Azariadis et al., 2016, Bullard and...

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A New Paper on the Fed’s Floor System

As readers of this blog know, I have an interest in the Fed's operating system. This interest has culminated in a new paper where I look at the consequences of the Fed moving from a corridor system to a floor system in 2008. In particular, the paper looks at what this change has meant for bank portfolios and, as a result, financial intermediation provided by banks. The paper concludes with some policy recommendations. I would also note that George Selgin has just released a new book on this...

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Janet Yellen on NGDPLT

Andrew Metrick of Yale University interviewed former Fed Chair Janet Yellen today. It was an interesting discussion and one where they talked about, among other things, what changes the Fed could bring about in light of the recently announced strategies, tools, and communication review to be held in 2019.  Janet Yellen said her idea for reform "has much in common with NGDP targeting". Her response can be seen in the video below: [embedded content] Glad to see her endorse a NGDPLT-like...

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“Et tu, John Williams?”

Tim Duy reports that r-star, which rose to prominence over the past few years, is experiencing a Caesar-like betrayal at the Fed: The Federal Reserve’s “r-star” has gone full supernova. New York Federal Reserve President John Williams, its key proponent, made clear in a speech late Friday that the neutral interest rate is no longer a guiding star for monetary policy. This means a federal funds rate in the range of what is considered neutral has no special significance as far as policy is...

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