Strategies for Monetary Policy

Thursday, April 23, 2020

Publication: May 2020

As the Federal Reserve System conducts its latest review of the strategies, tools, and communication practices it deploys to pursue its dual-mandate goals of maximum employment and price stability, Strategies for Monetary Policy—drawn from the 2019 Monetary Policy Conference at the Hoover Institution—emerges as an especially timely volume. The book’s expert contributors examine key policy issues, offering their perspectives on US monetary policy tools and instruments and the interaction between Fed policies and financial markets. The contributors review central bank inflation-targeting policies, how various monetary strategies actually work in practice, and the use of nominal GDP targeting as a way to get the credit market to work well and fix the friction in that market. In addition, they discuss the effects of the various rules that the Fed considers in setting policy, how the Fed’s excessive fine-tuning of the economy and financial markets has added financial market volatility and harmed economic performance, and the key issues that impact achievement of the Fed’s 2 percent inflation objective. The volume concludes by exploring potential options for enhancing our policy approach.

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About the Editors

John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution, a research associate of the National Bureau of Economic Research, and an adjunct scholar of the Cato Institute. Cochrane contributes editorial opinion essays to the Wall Street Journal and other publications and maintains the Grumpy Economist blog.

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution. He served on the President’s Council of Economic Advisers, as undersecretary of the Treasury for international affairs, and on the G-20 Eminent Persons Group on Global Financial Governance.

Contributors and Discussants: Adrien Auclert, Michael D. Bordo, James Bullard, Charlie Calomiris, Richard H. Clarida, John H. Cochrane, Chris Crowe, Mary C. Daly, Sebastian Edwards, Andy Filardo, Peter Fisher, Krishna Guha, James D. Hamilton, Laurie Simon Hodrick, Peter Ireland, Robert Steven Kaplan, Jeff Lacker, Andrew Levin, Mickey D. Levy, Andrew Lilley, Thomas M. Mertens, Loretta J. Mester, Scott Minerd, Bill Nelson, David Papell, Monika Piazzesi, Charles I. Plosser, Kenneth Rogoff, Brian Sack, George Selgin, George P. Shultz, John B. Taylor, Kevin Warsh, Robert Wenzel, Volker Wieland, John C. Williams


Table of Contents

Preface

Chapter One: Models, Markets, and Monetary Policy
by Richard H. Clarida
General Discussion: John B. Taylor, Michael D. Bordo, Chris Crowe, Charles I. Plosser, Sebastian Edwards, Brian Sack, John H. Cochrane

Chapter Two: The Case for Implementing Effective Negative Interest Rate Policy
by Andrew Lilley and Kenneth Rogoff
Discussant: Andrew Levin
General Discussion: Michael D. Bordo, Peter Fisher, John H. Cochrane, Mickey Levy, George Selgin, Charlie Calomiris

Chapter Three: Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates
by Thomas M. Mertens and John C. Williams
Discussant: Monika Piazzesi introductory remarks: Kevin Warsh
General Discussion: Krishna Guha, John H. Cochrane, Volker Wieland, Bob Wenzel, George Selgin, Thomas M. Mertens, James Bullard

Chapter Four: Perspectives on US Monetary Policy Tools and Instruments
by James D. Hamilton
Discussant: Peter N. Ireland
General Discussion: Adrien Auclert, John B. Taylor, Jeff Lacker, John H. Cochrane, Sebastian Edwards, Andrew Levin, Andy Filardo, James Bullard

Chapter Five: Evaluating Rules in the Fed’s Report and Measuring Discretion
by John H. Cochrane, John B. Taylor, and Volker Wieland
Discussant: David Papell

Symposium on: The Interaction of Markets and Policy
Introduction by George P. Shultz

Chapter Six: The Interaction of Markets and Policy: A Corporate Finance Perspective
by Laurie Simon Hodrick

Chapter Seven: The Fed and Financial Markets: Suggestions to Improve an Unhealthy Relationship
by Mickey D. Levy

Chapter Eight: Market Feedback Effects of Central Bank Operations under an Inflation-Targeting Regime
by Scott Minerd
General Discussion: George P. Shultz, Peter Fisher, John B. Taylor, John H. Cochrane

Symposium on: Monetary Strategies in Practice
Introduction: Charles I. Plosser

Chapter Nine: Optimal Monetary Policy and Inequality
by James Bullard

Chapter Ten: Monetary Policies in Practice
by Mary C. Daly

Chapter Eleven: Discussion of Key Issues Impacting Achievement of the Fed’s 2% Inflation Objective
by Robert S. Kaplan

Chapter Twelve: Improving Our Monetary Policy Strategy
by Loretta J. Mester
General Discussion: Charles I. Plosser, Andrew Levin, John H. Cochrane, Michael D. Bordo, Bill Nelson, Brian Sack, Andy Filardo

About the Contributors
About the Hoover Institution’s Working Group on Economic Policy
Index