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fomc | 2,002 | President Broaddus. | 5 |
fomc | 2,002 | I concur. | 3 |
fomc | 2,002 | Go down the list. | 5 |
fomc | 2,002 | President Minehan. | 4 |
fomc | 2,002 | I agree. | 3 |
fomc | 2,002 | That's not our procedure. [Laughter] | 9 |
fomc | 2,002 | Believe me I know that! | 6 |
fomc | 2,002 | I consider this that the Vice Chair is on a roll, which everybody is following. | 17 |
fomc | 2,002 | Governor Gramlich. | 4 |
fomc | 2,002 | I concur. Often when you talk I find myself hoping you'll be prophetic, but not this time. | 20 |
fomc | 2,002 | President Santomero. | 5 |
fomc | 2,002 | I support your recommendation, Mr. Chairman. | 9 |
fomc | 2,002 | President Hoenig. | 4 |
fomc | 2,002 | I understand your recommendation, and I go along with it. | 12 |
fomc | 2,002 | President Poole. | 4 |
fomc | 2,002 | Agree. | 2 |
fomc | 2,002 | President McTeer. | 5 |
fomc | 2,002 | Agree. | 2 |
fomc | 2,002 | President Jordan. | 3 |
fomc | 2,002 | I agree. | 3 |
fomc | 2,002 | Governor Bies. | 4 |
fomc | 2,002 | I support your recommendation. | 5 |
fomc | 2,002 | Governor Olson. | 3 |
fomc | 2,002 | Agree. | 2 |
fomc | 2,002 | Did we miss anybody? Call the roll please. | 10 |
fomc | 2,002 | The wording is on page 17 of the Bluebook. "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with m... | 167 |
fomc | 2,002 | Okay, we have a press statement, which is altered very marginally from the March statement. Two pieces of paper will be passed around. One is the March statement with the revisions on it, and the second one would be a final copy if we adopt the statement as drafted. The latter is essentially just the proposed final May... | 69 |
fomc | 2,002 | I think it's great. I see many heads nodding around the table, Mr. Chairman. | 19 |
fomc | 2,002 | Does anybody have any comments on the statement? I hear none, so I assume that we will adopt it. The next meeting is scheduled for Tuesday-Wednesday, June 25 and 26. If my recollection serves me, the Ambassador from the United Kingdom has invited the FOMC to dinner on the night of June 25. Is that accurate? | 72 |
fomc | 2,002 | Yes. | 2 |
fomc | 2,002 | This meeting is hereby adjourned. | 8 |
fomc | 2,002 | Would somebody like to move approval of the minutes of the May 7 meeting? | 16 |
fomc | 2,002 | So moved. | 3 |
fomc | 2,002 | Without objection, they are approved. Dino Kos, please. | 12 |
fomc | 2,002 | 1 Thank you, Mr. Chairman. I'll be referring to the charts that were just circulated to you. The intermeeting period in financial markets was characterized first by some signs of risk aversion in selected asset markets and second by a readjustment of expectations regarding the strength of the recovery and, in turn, the... | 2,217 |
fomc | 2,002 | Questions for Dino? If not, Vice Chair. | 10 |
fomc | 2,002 | Move approval of domestic operations. | 6 |
fomc | 2,002 | Without objection, they are approved. I believe that you've all gotten a memorandum requesting the Committee's approval of authority for the New York Bank to enter into agreements with other Reserve Banks for the conduct of open market operations in an emergency. If anyone has any questions, please raise them. I didn't... | 105 |
fomc | 2,002 | Mr. Chairman, I realize that typically when I give talks like this I'm required to give a disclaimer. These are not the views of the Federal Reserve Bank of Minneapolis, its board of directors, or the Board of Governors. | 45 |
fomc | 2,002 | Including yourself? [Laughter] | 7 |
fomc | 2,002 | 2 In this case, I'm hoping they may become the views of those organizations. The title of my talk is "Are Phillips Curves Useful for Forecasting Inflation? 40 Years of Debate." It is based on work that our Reserve Bank published last year in our quarterly review. Before turning to the package of materials that was dist... | 2,304 |
fomc | 2,002 | Art, is there evidence that, in the long run, inflation is a reliable predictor of money growth? | 21 |
fomc | 2,002 | Well, we have a theory, the quantity theory--as well as a number of other general equilibrium theories--that says money causes inflation. | 28 |
fomc | 2,002 | Remember, we also have a theory that says that the NAIRU works. | 16 |
fomc | 2,002 | Right, a theory. | 5 |
fomc | 2,002 | So we're testing now to determine what conceptual framework is consonant with the facts. Clearly, the correlation that you show in and of itself-- | 28 |
fomc | 2,002 | The correlation I show is a correlation. I don't think we ever prove a theory. The best we can do is to say that we have a theory and these data are consistent with the theory. In this case, quantity theory and a number of general equilibrium models say that an increase in the money supply will cause inflation, and we ... | 109 |
fomc | 2,002 | Sure. You can make the hypothesis that inflation increases demand for money and the central bank caves in to that demand. MR. ROLNICK Right, absolutely. | 33 |
fomc | 2,002 | So the question is-- | 5 |
fomc | 2,002 | Did they cave? | 4 |
fomc | 2,002 | No. But we do have statistical techniques that can infer which variable is leading if there are leads involved. | 21 |
fomc | 2,002 | We'd have to get Chris Sims here to discuss whether those techniques are good enough to determine causality. I think that's hard to do. Even with the best statistical techniques we have, it is difficult to get causality. | 45 |
fomc | 2,002 | The relationship is not causality. It's basically lead association, and that's essentially what we're trying to determine. I'm not arguing the opposite. I'm just saying that if our basic purpose is to draw inferences from the data, we have to distinguish between when we construct a hypothesis and conclude results from ... | 90 |
fomc | 2,002 | Thank you, Mr. Chairman. This article that the Minneapolis Fed has published is obviously a very interesting one, and I think it is a timely reminder to all of us how difficult it is to forecast inflation. After that research was done, our staff did some further work on the Minneapolis results, and the results of our r... | 559 |
fomc | 2,002 | I'm very familiar with that study, and I think it was an excellent study in a number of ways. Let me point out that the authors of that work found, too, that the Phillips curve was very unreliable and was not stable. They had their reasons for claiming it wasn't stable ex post; ex ante there was no such suggestion in t... | 469 |
fomc | 2,002 | I don't think the science of economics is ever confident in that type of prediction. It's certainly not at the point where we can confidently predict that. To me it's a question of what is helpful to the policymaker. And if in seven out of ten times we are able to point out the direction of future inflation, I'd view t... | 69 |
fomc | 2,002 | Just remember that in a sample of ten, that .7 has a very large variance. | 18 |
fomc | 2,002 | Thank you! | 3 |
fomc | 2,002 | But I think it's better than 50 percent. | 10 |
fomc | 2,002 | No, I think there is a question of whether it is statistically better than 50 percent. In this case there were not enough observations to do a very good job of testing whether that result was any better statistically than a flip of a coin. So while I think there may be something there, you don't have enough observation... | 75 |
fomc | 2,002 | My point is that I wouldn't discard it out of hand. I think it is still something for us to look at as policymakers; it provides some useful input. | 32 |
fomc | 2,002 | Further questions for Arthur? | 5 |
fomc | 2,002 | Art, your point 3 suggests that the model you would want to substitute for the Phillips curve is a quantity theory type of model. The question I have is, With such a model, in what ways would you expect the policy process of this Committee to change? | 53 |
fomc | 2,002 | I thought you were going to ask me an easy question! [Laughter] | 16 |
fomc | 2,002 | Well, I think I know what Milton Friedman's answer would be. But what are you suggesting that we do? | 23 |
fomc | 2,002 | All I'm suggesting is that our current knowledge is that, for high-frequency observations or short term, it's very difficult to predict inflation. For the long term I think we can do a pretty good job. | 40 |
fomc | 2,002 | Long term using what? | 5 |
fomc | 2,002 | Using quantity theory. But if we're interested in short-run movements in the economy, I think the quantity theory has not done very well. After all, that's the reason we don't use monetary aggregates for short-run predictions of inflation. So as long as we're concerned about short-run movements in inflation--and I'm ta... | 214 |
fomc | 2,002 | It sounds to me as though we would have a lot fewer meetings. | 14 |
fomc | 2,002 | May I make just one point here about Art's work? I'm very sympathetic to President Moskow's point about not discarding this basic underlying structure. But at the same time I'm certainly willing to concede Art's point that in the last fifteen years the unemployment rate has not had as much predictive power for future i... | 929 |
fomc | 2,002 | Vice Chair. | 3 |
fomc | 2,002 | I could make a facetious remark and stop there, Mr. Chairman, to the effect that Art's presentation is particularly attractive if you have not devoted many years and much energy to getting a PhD in economics. The more important lesson from the various analyses that are used, however, is that--as David has pointed out I... | 328 |
fomc | 2,002 | I think there's one hypothesis that has not been shut down yet, certainly not over the last five to ten years, and that is that the economic structure that drives this economy is under continuous change. That is, we don't have a set of fixed linear coefficients that abstract from reality and duly respond with a reasona... | 623 |
fomc | 2,002 | Well, I have a much less philosophical approach to this, although my thoughts are very much in line with yours and Dave's as well as Bill's and Mike's. It's not surprising to me, as complex as our economy is, that more than one factor might be responsible for changes in inflation, the direction of inflation, changes in... | 195 |
fomc | 2,002 | Further questions for Arthur? If not, let's turn to John Roberts. | 14 |
fomc | 2,002 | 3 Thank you, Mr. Chairman. Our presentation this afternoon, entitled "Explaining Low Inflation since the Mid-1990s" reflects joint work with Flint Brayton and David Lebow and will be presented by myself and David. As shown in the upper left panel of your first exhibit, the rate of unemployment fell through the late 199... | 1,482 |
fomc | 2,002 | Exhibit 4 addresses the role of productivity in holding down inflation in the 1990s. In the long run, a faster rate of productivity growth implies faster growth of real wages and has no implications for inflation. But in the short-to medium run, we find evidence that productivity does affect inflation. This occurs beca... | 2,416 |
fomc | 2,002 | Going to exhibit 2, how are you fitting those coefficients? | 13 |
fomc | 2,002 | Those coefficients are estimated on data for the last thirty-five years. | 13 |
fomc | 2,002 | These are reduced-form models? | 6 |
fomc | 2,002 | No, really there's a pair of equations--one for price inflation and one for wage inflation--that are estimated together. We're assuming in the process of estimating these two equations that expectations are formed in a manner consistent with a view of how monetary policy operates to move the federal funds rate. Built i... | 92 |
fomc | 2,002 | As modeled by what? | 5 |
fomc | 2,002 | Well, the specific way that we characterize monetary policy is in the form of a "Taylor rule" equation--a dynamic form of the Taylor rule that has a lagged interest rate in it. We're using different coefficients in this Taylor rule to characterize the two different views. | 54 |
fomc | 2,002 | Are you imposing this on the model, or are you inferring it from the data? | 18 |
fomc | 2,002 | We are imposing it on the model, but we are taking our coefficient estimates from studies that other people have done based on analyzing the data. We are not doing our own independent estimates. | 37 |
fomc | 2,002 | But this is structured on the basis of a number of independent submodels, effectively. In endeavoring to infer relationships and to build this system up you do so in a manner obviously in which you're not testing it in the macro sense. It is part of the fallout of an earlier system. In other words, you don't confirm th... | 97 |
fomc | 2,002 | To be clear, we're imposing coefficients only as they relate to the conduct of monetary policy. But we do estimate the other coefficients--for example, the beta and gamma that are explicitly shown in the exhibit. | 41 |
fomc | 2,002 | So what is the size of beta? | 8 |
fomc | 2,002 | Well, we have more than one lag on inflation, but if we summed up the individual coefficients on all the lags, beta would be about .65, I think. | 35 |
fomc | 2,002 | So it's somewhere between a first difference equation and a level equation in a sense? | 16 |
fomc | 2,002 | Yes, though the answer to that does depend upon how inflation expectations are formed. | 16 |
fomc | 2,002 | That gets to my last question. What proxy are you using for that? | 15 |
fomc | 2,002 | Well, we're actually generating proxies ourselves from a small VAR model, one of the elements of which is an equation for the federal funds rate in the form of a Taylor rule type of equation that I described earlier. So we're not using survey data. | 49 |
fomc | 2,002 | That's a point I don't quite get. Could you just explain it to me again? | 17 |
fomc | 2,002 | In the process of estimating the wage-price structure in the FRB/US model, we are actually generating our own proxies for expected inflation. And those proxies are the forecasts that would be generated by a small VAR model of the economy, assuming that embedded in that small VAR model is a particular view of how moneta... | 66 |
fomc | 2,002 | What are the variables in the VAR model that you're using there? | 13 |
fomc | 2,002 | The federal funds rate, the gap between the unemployment rate and the natural rate, and the rate of consumer price inflation. | 24 |
fomc | 2,002 | Do you have any ex-post tests on that model? Art Rolnick would argue that his data say that shouldn't fit. | 24 |
fomc | 2,002 | Well, one could ask whether that model is stable, and certainly-- | 14 |
fomc | 2,002 | One could ask a lot of questions! [Laughter] | 12 |
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