Copyright (c) 2008 All rights reserved. http://works.bepress.com/peter_ireland Recent documents in Peter N. Ireland en-us Thu, 03 Jan 2008 13:17:18 PST 3600 http://works.bepress.com/peter_ireland/17 http://works.bepress.com/peter_ireland/17 Fri, 27 Apr 2007 09:52:59 PDT Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity of 1.79. Integrating under this money demand curve yields estimates of the welfare cost of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/15 http://works.bepress.com/peter_ireland/15 Sat, 27 Jan 2007 12:38:59 PST Traditionally, the effects of monetary policy actions on output are thought to be transmitted via monetary or credit channels. Real business cycle theory, by contrast, highlights the role of real price changes as a source of revisions in spending and production decisions. Motivated by the desire to focus on the effects of price changes in the monetary transmission mechanism, this paper incorporates a direct measure of the real own-price of money into an estimated vector autoregression and a calibrated real business cycle model. Consistent with this new view of the monetary transmission mechanism, both approaches reveal that movements in the own-price of money are strongly related to movements in output. Michael T. Belongia Monetary Economics http://works.bepress.com/peter_ireland/16 http://works.bepress.com/peter_ireland/16 Sat, 27 Jan 2007 12:38:59 PST This paper extends a conventional cash-in-advance model to incorporate a real balance effect of the kind described by de Scitovszky, Haberler, Pigou, and Patinkin. When operative, this real balance effect eliminates the liquidity trap, allowing the central bank to control the price level even when the nominal interest rate hits its lower bound of zero. Curiously, the same mechanism that gives rise to the real balance effect also implies that monetary policies have distributional consequences that make some agents much worse off under a zero nominal interest rate than they are when the nominal interest rate is positive. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/14 http://works.bepress.com/peter_ireland/14 Sat, 27 Jan 2007 12:38:58 PST The monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact on real variables such as aggregate output and employment. Specific channels of monetary transmission operate through the effects that monetary policy has on interest rates, exchange rates, equity and real estate prices, bank lending, and firm balance sheets. Recent research on the transmission mechanism seeks to understand how these channels work in the context of dynamic, stochastic, general equilibrium models. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/13 http://works.bepress.com/peter_ireland/13 Sat, 27 Jan 2007 12:38:58 PST In a New Keynesian model, technology and cost-push shocks compete as terms that stochastically shift the Phillips curve. A version of this model, estimated via maximum likelihood, points to the cost-push shock as far more important than the technology shock in explaining the behavior of output, inflation, and interest rates in the postwar United States data. These results weaken the links between the current generation of New Keynesian models and the real business cycle models from which they were originally derived; they also suggest that Federal Reserve ocials have often faced dicult trade-offs in conducting monetary policy. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/12 http://works.bepress.com/peter_ireland/12 Sat, 27 Jan 2007 12:38:58 PST This paper focuses on the specification and stability of a dynamic, stochastic, general equilibrium model of the business cycle with sticky prices. Maximum likelihood estimates reveal that the data prefer a version of the model in which adjustment costs apply to the price level but not to the inflation rate. Formal hypothesis tests provide evidence of instability in the estimated parameters, concentrated in the Euler equation linking consumption growth to the interest rate. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/11 http://works.bepress.com/peter_ireland/11 Sat, 27 Jan 2007 12:38:57 PST A two-sector real business cycle model, estimated with postwar U.S. data, identifies shocks to the levels and growth rates of total factor productivity in distinct consumption- and investment-goods-producing technologies. This model attributes most of the productivity slowdown of the 1970s to the consumption-goods sector; it suggests that a slowdown in the investment-goods sector occurred later and was much less persistent. Against this broader backdrop, the model interprets the more recent episode of robust investment and investment-specific technological change during the 1990s largely as a catch-up in levels that is unlikely to persist or be repeated anytime soon. Peter N. Ireland Macroeconomics http://works.bepress.com/peter_ireland/10 http://works.bepress.com/peter_ireland/10 Sat, 27 Jan 2007 12:38:57 PST A small, structural model of the monetary business cycle implies that real money balances enter into a correctly-specified, forward-looking IS curve if and only if they enter into a correctly-specified, forward-looking Phillips curve. The model also implies that empirical measures of real balances must be adjusted for shifts in money demand to accurately isolate and quantify the dynamic effects of money on output and inflation. Maximum likelihood estimates of the model's parameters take both of these considerations into account, but still suggest that money plays a minimal role in the monetary business cycle. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/8 http://works.bepress.com/peter_ireland/8 Sat, 27 Jan 2007 12:38:56 PST In cash-in-advance models, necessary and sufficient conditions for the existence of an equilibrium with zero nominal interest rates and Pareto optimal allocations place restrictions only on the very long-run, or asymptotic, behavior of the money supply. When these asymptotic conditions are satisfied, they leave the central bank with a great deal of flexibility to manage the money supply over any finite horizon. But what happens when these asymptotic conditions fail to hold? This paper shows that the central bank can still implement the Friedman rule if its actions are appropriately constrained in the short run. Peter N. Ireland Monetary Economics http://works.bepress.com/peter_ireland/9 http://works.bepress.com/peter_ireland/9 Sat, 27 Jan 2007 12:38:56 PST This paper characterizes Federal Reserve policy since 1980 as one that actively manages short-term nominal interest rates in order to control inflation and evaluates this policy using a dynamic, stochastic, sticky-price model of the United States economy. The results show that the Fed's policy insulates aggregate output from the effects of exogenous demand-side disturbances and, by calling for a modest but persistent reduction in short-term interest rates following a positive technology shock, helps the economy to respond to supply-side disturbances as it would in the absence of nominal rigidities. Peter N. Ireland Monetary Economics