FRBSF Economic
Letter
2006-05; March 17, 2006
Enhancing Fed Credibility
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This Economic Letter is adapted from
remarks by Janet L. Yellen, President and CEO of
the Federal Reserve
Bank of San Francisco, delivered to the Annual Washington
Policy Conference sponsored by the National Association
for Business Economics (NABE) in Washington, D.C.,
on March 13, 2006.
Good afternoon. It's always a pleasure to speak to
the members of NABE, and I very much appreciate the
invitation to participate in
this year's Economic Policy Conference.
My remarks today will focus on the issue of credibility—in
particular on the Federal Reserve's credibility regarding
its announced commitment to maintaining price stability.
I will discuss ways in which the Federal Reserve could
improve transparency and communication, enhancing Fed
credibility and the effectiveness of monetary policy.
To my mind, credibility is a worthy end in itself—those
who are credible are often said to be "as good as their
word." But credibility is not only virtuous; it is
also useful. I will argue that one of its most important
benefits is shaping public expectations about inflation,
and in particular, "anchoring" those expectations to
price stability. As a consequence, credibility enhances
the effectiveness of monetary policy which, in turn,
serves a second "worthy end," namely, maximizing the
nation's economic well-being.
To give you a brief overview of the argument, the
idea is that, with credibility, the Fed and the public
work together toward the same goals. When this happens,
one often hears the phrase "the markets do all the
work of monetary policy," meaning that market participants
correctly anticipate the actions that the Fed will
make in response to economic news and shocks. This
alignment of the Fed's actions and the public's expectations
strengthens the monetary policy transmission mechanism
and shortens policy lags. In contrast, in the absence
of credibility, policymakers and the public may work
at cross-purposes, and monetary policy must act to
overcome and dislodge expectations that hinder the
achievement of our goals. Indeed, as I will discuss
more fully in a few minutes, this is exactly what happened
in the 1970s in the United States.
Credibility is all about what the public expects the
Fed will do in the future. Indeed, macroeconomic theory
teaches us that expectations of future economic developments
play a prominent role in all aspects of economic decision-making.
For example, consumption theory tells us that consumer
spending depends on one's permanent income, that is,
the present value of expected future income. Similarly,
bond yields depend on expected future short-term interest
rates. The list goes on and on. Of critical importance
for the successful conduct of monetary policy, economic
theory tells us that prices set today depend on the
inflation rate expected in the future. Therefore, it
is only when the Fed's commitment to low inflation
is credible that people will expect low inflation in
the future and set prices accordingly. Clearly, then,
expectations of future inflation play a central role
in our analysis of the economy and in our policy deliberations.
We have certainly seen the grim consequences when
the Fed's commitment to low inflation is not credible.
Let me step briefly back in time to remind you. In
the 1950s and early 1960s the Fed had accumulated an
enviable track record of maintaining price stability—for
example, the personal consumption expenditures (PCE)
price index inflation rate averaged a little more than
1-1/2% from 1955 to 1965.1 But,
starting in the late 1960s, the grip on inflation had
begun to slip. By 1970, the core measure of PCE price
index inflation roughly tripled to over 4-1/2%;
and then between 1970 and 1980, it doubled to over
9%.
Not surprisingly, by 1980, the public had little faith
in the Fed's commitment to price stability, and in
that year, expectations of inflation for the next ten
years reached 8%. The economy had entered a
wage-price-expectations spiral where higher inflation
fed into higher wage demands and higher expected inflation,
which fed back into higher inflation. Worse yet, high
inflation occurred at the same time as high unemployment:
stagflation had set in.
To be sure, the 1970s were a challenging period for
monetary policy. Sizable negative supply shocks, including
the oil price shocks and the productivity slowdown,
created difficult short-run tradeoffs between the Fed's
dual goals—maximum sustainable employment and
price stability. But monetary policy decisions at the
time also greatly exacerbated these problems.
Research suggests that the dismal macroeconomic record
of the 1970s could have been significantly improved
if the Fed had "taken ownership" of the inflation situation—that
is, if it had paid close and consistent attention to
keeping inflation contained. By doing so, it would
have done a better job of anchoring expectations to
low inflation. For example, one study analyzed the
effects of supply shocks when the Fed has imperfect
credibility and the public continuously reevaluates
its perception of Fed policy based on what occurs in
the economy.2 It
showed that a sustained rise in inflation combined
with accommodative monetary policy, like the one that
occurred during the late 1960s and much of the 1970s,
impels a process that undermines the public's confidence
in the Fed's commitment to low inflation. In other
words, these developments eventually erode the cable
tethering expectations to price stability as people
come to believe that the prevailing high inflation
rate will persist into the indefinite future, just
as occurred in the 1970s. If, instead, the Fed responds
enough to stem the rise in inflation, inflation expectations
remain well anchored to price stability. This research
suggests that if the Fed had followed such a policy
during the 1970s, even in the face of those severe
supply shocks, the result would have been lower and
much more stable inflation and unemployment, which,
in turn, would have obviated the need for the painful
disinflationary recessions of the early 1980s. This
research also suggests another very important benefit
of central bank credibility—that is, of monetary
policy that successfully anchors expectations to price
stability. Such a policy can improve the achievement
of both parts of the Fed's dual mandate: maximum sustainable
employment and price stability. When the public is
confident in the Fed's commitment to price stability,
the Fed has more latitude to respond to fluctuations
in labor and product markets, because there is less
risk that an easing of policy will unleash a wave of
inflation fears.3
Fortunately, the Fed's commitment to price stability
has indeed become far more credible since the 1970s,
so I can illustrate this point based on some recent
experience. In 2001, the Fed was able to cut rates
aggressively in response to the recession, confident
that inflation expectations would remain low. Similarly,
over the past two years, wages, core inflation, and
long-run inflation expectations have remained well
contained despite a dramatic increase in energy prices.
With inflation expectations under control, we have
avoided a rehash of the 1970s and the need to rein
in inflation by engineering a severe recession.
How has the Fed built this credibility? As I said
at the outset, the Fed, like other central banks, has
earned its credibility: It has a long track record
of delivering low and stable inflation. But digging
deeper into the process, I'd like to focus on two aspects
of policy—one having to do with policy actions
and the other with the words that support those actions—that
have changed dramatically since the 1970s and that
have contributed to this admirable track record.
First, in terms of policy actions, the Fed has become
more systematic in its approach to maintaining price
stability and promoting maximum sustainable employment.
This systematic approach is well-described by the famous "Taylor
Rule" (Taylor 1993). According to the Taylor
Rule, an increase in inflation should consistently
call forth a tighter monetary policy in the form of
a higher real federal funds rate. In addition, the
Fed should systematically tighten policy as labor market
slack diminishes. Such a response serves to stabilize
output and employment and also to preempt an increase
in inflation. The experience of 1994 exemplifies the
application of these principles: faced with declining
unemployment and the prospect of an unwelcome increase
in inflation, the Fed engineered a strong funds rate
response. Because the Fed has been consistent in its
approach, over time, market participants have come
to observe its reaction to news and therefore better
understand the determinants of policy. Therefore, this
approach has enhanced the ability of financial markets
to anticipate the policy response to economic developments.
Second, the Fed has taken a number of steps to improve
the public's understanding of its policy decisions
through an increased emphasis on communication and
transparency. In early 1994, just twelve years ago,
the FOMC first started to announce explicitly changes
in the federal funds rate target in the post-meeting
press release. Later that year, it added descriptions
of the state of the economy and the rationale for the
policy action to the release. In 2000, the FOMC introduced
a statement describing the "balance of risks" to the
outlook, and in 2002 the Committee began releasing
the votes of its individual members and the preferred
policy choices of any dissenters. In 2003, the FOMC
first gave forward-looking guidance on policy in the
post-meeting release, stating "that policy accommodation
can be maintained for a considerable period." Finally,
last year, it decided to release the minutes of its
meetings with a much shorter delay—only three
weeks, as opposed to just after the subsequent meeting.
This shorter time horizon provides the public with
a more timely and nuanced understanding of the various
views within the Committee.
This enhanced transparency complements the systematic
approach because it, too, helps the markets anticipate
the Fed's response to economic developments. Recent
research highlights the ways in which central bank
communication can improve the public's ability to predict
policy actions, and how this improvement can enhance
the effectiveness of policy at stabilizing the economy.4The
key insight of this research is that the central bank
has useful knowledge about the likely direction of
the economy and monetary policy that the public does
not have. Conveying this information to the public
better aligns private and central bank expectations
about policy and the economy. And this appears to be
working in practice: financial markets have become
much better at forecasting the future path of monetary
policy than they were up to the late 1980s, and are
more certain of their forecast ex ante, as measured
by implied volatilities from options contracts.5
Enhanced transparency is particularly valuable when
policy has to deviate from its normal, systematic approach.
A good illustration comes from 2003, when inflation
fell below a comfortable level and there was a threat
of outright deflation. In post-FOMC meeting statements
issued that year, the FOMC referred to "…an unwelcome
fall in inflation…" and worried about "…the
risk of inflation becoming undesirably low…" Consistent
with the findings of economic research, it made sense
for the FOMC to take a more accommodative stance than
otherwise would be expected until this threat had passed.6 For
this policy strategy to work, it required that the
public understand it and correctly foresee that policy
would remain accommodative for some time. Again, it
is the public's expectation of future actions, not
just the current setting of the fed funds rate, that
matters for bond rates, inflation expectations, and
other economic variables. Therefore, the FOMC statement
at that time said, "In these circumstances, the
Committee believes that policy accommodation can be
maintained for a considerable period." This forward-looking
language itself seems to have helped keep long-term
interest rates low, which added stimulus to the economy
and helped avoid deflation.
I believe these two features of Fed monetary policy—a
systematic approach to policy and the steps towards
more open communication and transparency—are
particularly noteworthy in contributing to our policy
success over the past two decades. They have helped
strengthen public confidence in the Fed and thereby
helped anchor inflation expectations to price stability.
Additionally, by providing clear explanations of its
policies to the public, greater transparency has also
enhanced Fed accountability, a vital consideration
for a government institution in a democracy.
But, despite the many steps that we have made on communication
and transparency, other central banks have gone further
than the Fed. Indeed, a growing number of "inflation
targeting" central banks explicitly state a numerical
objective for the inflation rate and provide reports
detailing their economic forecasts.7 There
has been a great deal of discussion of whether the
Federal Reserve should likewise take further steps
towards more open communication, including publicly
announcing a specific, numerical inflation objective.
I will spend the remainder of my remarks addressing
this question, looking first to the results from theoretical
and empirical research on the effects of such communication.
First, what are the benefits of adopting a numerical
objective for inflation? In theory, effective central
bank communication of a numerical long-run inflation
objective to the public can simplify the complicated
informational problems people face in the economy,
and can reduce the uncertainty about the central bank's
goals and policies. Indeed, recent research suggests
that clear communication of a numerical long-run inflation
objective may assist in the anchoring of long-run inflation
expectations, relative to a policy that leaves it to
the public to infer the objective from experience.8 The
resulting improved alignment of Fed actions and public
perceptions would reduce expectations errors that would
otherwise add to macroeconomic variability. As a result,
the Fed would be better able to achieve both inflation
and employment goals. In the parlance of economists,
communication of a numerical long-run inflation objective
could shift inward the "macroeconomic possibilities
frontier"—the economy's menu of feasible output
and inflation volatility combinations. Of course, for
communication to be effective, policymakers must consistently
take appropriate actions that back up the commitment
to price stability and full employment.
Another important reason to provide clear guidance
to the public regarding the long-run inflation objective
is that doing so may help us avoid deflation and reduce
the costs of its occurrence. We have long known that
inflation can be too high, but the recent experience
of Japan has reminded us that inflation can be too
low as well. We know from history that such an outcome
can be extremely damaging to the economy. Perhaps the
most unsettling aspect of the experience of Japan over
the past decade is how difficult it can be to extract
oneself from deflation. An explicit numerical long-run
inflation objective may help anchor inflation expectations
at a low positive number and avoid a potentially devastating
deflationary spiral.
What is the empirical evidence on the value of an
explicit numerical inflation objective? So far, it
has been hard to find convincing evidence that countries
with an announced numerical inflation objective have
performed better in terms of inflation and macroeconomic
stabilization than those that do not have one. Part
of the problem is that there just aren't enough macroeconomic
data to get a clear read on this question.9 But
we do have data on inflation expectations that provide
evidence about the effect of communication on anchoring
expectations, which is the key mechanism that improves
macro performance in the theoretical research I've
discussed.
Surveys of long-run inflation expectations have been
remarkably stable in both the United States and in
inflation-targeting countries over the past ten years.
Indeed, based on the evidence from survey data, it's
hard to argue that inflation expectations are not pretty
well anchored already.10 An
extreme example is provided by the Survey of Professional
Forecasters; its median forecast of inflation over
the next ten years has barely budged from 2.5%
over the past six years, despite large fluctuations
in energy prices and other disturbances.
But, the evidence on the stability of long-run inflation
expectations in the United States derived from financial
markets is not quite so reassuring. Researchers using
measures of inflation expectations derived from bond
market data find that long-run inflation expectations
in inflation-targeting countries are remarkably stable
and well-anchored, while in the United States long-run
inflation expectations have been highly sensitive to
economic news.11 These
studies examine far-ahead forward inflation compensation—the
difference between far-ahead forward interest rates
on nominal and inflation-indexed bonds—to measure
long-term inflation expectations. Although this measure
of long-term inflation "compensation" is noisy and
by no means perfect, the extent to which it moves in
response to major economic news—such as economic
data releases and monetary policy announcements—nonetheless
sheds light on the stability of long-term inflation
expectations in a given country. Thus, if ten-year-ahead
forward inflation compensation does not respond significantly
or systematically to major economic news, then that
suggests that financial market participants have relatively
well-anchored views about the long-term outlook for
inflation in that country.
For the United States, they find that far-ahead forward
inflation compensation has exhibited significant, systematic
responses to macroeconomic data releases and monetary
policy announcements. These responses suggest that
developments that affect the near-term outlook for
the economy also pass through to expectations of inflation
at much longer horizons. However, in countries with
explicit numerical inflation objectives, including
Canada and Sweden, the research finds that long-term
inflation compensation has been unresponsive to economic
news. Although the evidence from surveys and financial
markets is admittedly mixed, taken together these studies
suggest that announcing a numerical price stability
objective and greater transparency in general could
help further anchor long-run inflation expectations.
My personal view is that the steps that we have already
taken toward greater transparency have been a good
thing, and that we should think seriously about venturing
further along this path. As Mae West famously said, "Too
much of a good thing can be wonderful." More seriously,
although it is possible to carry transparency too far—I
would not, for example, want live television coverage
of FOMC meetings—I support the idea of a quantitative
objective for price stability. I believe that it enhances
both Fed transparency and accountability and that it
offers important benefits, as I have discussed. In
particular, it could help to anchor the public's long-term
inflation expectations from being pushed too far up
or down, and thus help avoid both destabilizing inflation
scares and deflations; a credible inflation objective
could thereby enhance the flexibility of monetary policy
to respond to the real effects of adverse shocks.
A numerical definition of price stability could also
help to focus and clarify our own analysis and discussions
in the FOMC. For example, the Board staff regularly
prepares detailed forecasts and analyses of monetary
policy options. But, this otherwise quite sophisticated
analysis is hampered by the lack of clear guidance
as to what exactly the long-run inflation objective
is.12 In
particular, it is difficult to derive and analyze the
appropriate path for policy when one does not know
what the policy goal is. Similarly, I think the discussion
of risks to price stability at the policy table would
gain a sharper focus if we had a numerical price stability
objective.
Indeed, articulating an explicit numerical long-run
inflation objective may not be such a big step as some
people imagine. Many people have interpreted the FOMC
statements in 2003 that I mentioned before as signaling
a lower bound for the amount of inflation the FOMC
will accept and statements in other years placing an
upper bound on acceptable inflation. In addition, several
FOMC members have already publicly referred to their
comfort zones for inflation and these have been repeated
by the press and market analysts. Therefore, such a
declaration may serve to solidify and clarify what
people already believe to be true.
In my view, the choice of a specific inflation objective
should depend, in part, on an evaluation of the costs
and benefits of very low inflation. The inflation objective
should contain a buffer sufficient to make sure that
the lower bound on the nominal interest rate does not
interfere with the ability of monetary policy to stabilize
the economy and that downward nominal wage rigidity
does not interfere with overall labor market performance.
Factors such as the magnitude of the neutral real funds
rate, the degree of macroeconomic volatility, and the
pace of productivity growth, are relevant in assessing
the size of the needed buffer. Estimates of the extent
of measurement bias in the relevant inflation indices
must also figure into the choice of the numerical objective.13
The choices of a specific index, objective, and range
are matters on which judgments may differ. Taking the
various factors that I mentioned into account, I see
an inflation rate of 1-1/2% as measured by the
core personal consumption expenditures price index,
with a comfort zone extending between 1 and 2%,
as an appropriate price stability objective for the
Fed. In terms of setting a long-run goal, I think it
makes sense to focus our public communication on one
specific price index. Doing so is simpler and more
transparent than giving out multiple, potentially contradictory,
objectives for different price indices. Of course,
the issue of the appropriate level of the long-run
inflation objective should be occasionally revisited.
If the fundamental factors influencing this choice
of a numerical inflation objective were to change significantly,
the level of the objective should be revised accordingly.
As with any change in procedure, there are potential
drawbacks. One is the possibility that some observers
may misinterpret the enunciation of a long-run inflation
objective as a down-weighting of the Committee's mandate
to foster maximum employment. Moreover, there is an
actual risk that the Committee's performance with respect
to the employment goal could actually be compromised
if too short a time frame is allowed for the attainment
of the price-stability objective. To reduce the risk
of such an outcome, the announcement of any numerical
inflation objective should be made in the context of
clear and effective communication of the Fed's multiple
goals. Here, I am drawn to some specific language proposed
by Chairman Bernanke (2003), while he was a Fed Governor: "the
FOMC regards this inflation rate as a long-run objective
only and sets no fixed time frame for reaching it.
In particular, in deciding how quickly to move toward
the long-run inflation objective, the FOMC will always
take into account the implications for near-term economic
and financial stability." I concur that the numerical
objective is a long-run goal, and would want the Committee
to have a flexible time frame within which to maintain
it.
But, you may ask: If the FOMC were to announce a numerical
long-run price stability objective, why shouldn't the
Fed also announce a target for full employment, the
other half of the dual mandate? In fact, the Full Employment
and Balanced Growth Act of 1978—often referred
to as the Humphrey-Hawkins Act—did that, stipulating
a 4% unemployment rate target, as well as a
zero inflation target. However, unlike the inflation
rate, which is under the long-run control of the central
bank, the Fed does not have the capacity to achieve
any long-run unemployment objective that is not consistent
with economic fundamentals.
Of course, we do attempt to gauge the level of maximum
sustainable employment in analyzing the economy and
evaluating policy choices. However, the two pieces
of this puzzle, the natural rate of unemployment and
trend labor force participation, change over time in
unpredictable ways and are measured with considerable
error. In the spirit of clearer communication, I think
it would be worthwhile to communicate more fully to
the public our analysis and views on the economic outlook
and estimates of sustainable employment, unemployment,
and output. But, raising these estimates to the level
of a formal explicit numerical long-run unemployment
objective would be misguided and confusing, and could
endanger our hard-won credibility.
In addition to announcing a numerical price stability
objective, I believe the Fed should continue to enhance
its communications regarding the economic outlook and
perspectives on monetary policy. Other central banks
have adopted a wide range of communications practices
aimed at improving both transparency and accountability.
We should carefully study whether any of these might
be suitable for the Federal Reserve to adopt. Although
policymakers may not see the future perfectly, we do
know what we are thinking about in terms of policy,
and we should convey that information to the public
as best we can.
In summary, the Fed has made significant progress
in building credibility over the past two decades by
following systematic and appropriate monetary policy
and gradually increasing the quality of our communication
and transparency. I think it makes sense to take this
transparency at least one step further by articulating
a numerical price stability objective. I recognize
that there are potential costs to doing so, but to
my mind, they are outweighed by the benefits. Such
a step could further enhance the credibility of the
Fed and improve the effectiveness of monetary policy
not only for controlling inflation but also for stabilizing
employment and output.
References
Ball, Lawrence, and Niamh Sheridan. 2003. "Does Inflation Targeting Make a
Difference?" In The Inflation-Targeting Debate, eds. B. Bernanke and
M. Woodford. Chicago: University of Chicago Press.
Bernanke, Ben S. 2003. Remarks at the 28th Annual
Policy Conference: "Inflation Targeting: Prospects
and Problems," Federal Reserve Bank of St. Louis, October
17.
Bernanke, Ben S., Thomas Laubach, Frederic S. Mishkin,
and Adam S. Posen. 1999. Inflation Targeting: Lessons
from the International Experience. Princeton,
NJ: Princeton University Press.
Gürkaynak, Refet S., Andrew T. Levin, Andrew
N. Marder, and Eric T. Swanson. 2006. "Inflation Targeting
and the Anchoring of Inflation Expectations in the
Western Hemisphere." Forthcoming in Monetary Policy
under Inflation Targeting, eds. F. Mishkin and
K. Schmidt-Hebbel. Santiago, Chile: Banco Central de
Chile.
Gürkaynak, Refet S., Andrew T. Levin, and Eric
T. Swanson. 2006. "Does Inflation Targeting Anchor
Long-Run Inflation Expectations? Evidence from Long-Term
Bond Yields in the U.S., U.K., and Sweden." Federal
Reserve Bank of San Francisco Working Paper 2006-09.
http://www.frbsf.org/publications/economics/papers/2006/wp06-09bk.pdf
Gürkaynak, Refet S., Brian Sack, and Eric T.
Swanson. 2003. "The Excess Sensitivity of Long-Term
Interest Rates: Evidence and Implications for Macroeconomic
Models." Federal Reserve Board of Governors Finance
and Economics Discussion Series 2003-50.
http://www.federalreserve.gov/pubs/feds/2003/200350/200350abs.html
Gürkaynak, Refet S., Brian Sack, and Eric T.
Swanson. 2005. "The Sensitivity of Long-Term Interest
Rates to Economic News: Evidence and Implications for
Macroeconomic Models." American Economic Review 95(1)
(March) pp. 425-436.
Johnson, David R. 2002. "The Effect of Inflation Targeting
on the Behavior of Expected Inflation: Evidence from
an 11-Country Panel." Journal of Monetary Economics 49,
pp. 1493-1519.
Kohn, Donald L. 2005. "Discussion of ‘Inflation
Targeting in the United States?'" In The Inflation-Targeting
Debate, eds. B. Bernanke and M. Woodford. Chicago:
University of Chicago Press, pp. 337-350.
Kuttner, Kenneth N. 2004. "A Snapshot of Inflation
Targeting in its Adolescence." In The Future of
Inflation Targeting, eds. C. Kent and S. Guttmann.
Sydney, Australia: Reserve Bank of Australia.
Lange, Joe, Brian Sack, and William Whitesell. 2003. "Anticipations
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of Money, Credit, and Banking 35(6, part 1) (December),
pp. 889-910.
Lebow, David, and Jeremy Rudd. 2003. "Measurement
Error in the Consumer Price Index: Where Do We Stand?" Journal
of Economic Literature 41 (March) pp. 159-201.
Orphanides, Athanasios, and John C. Williams. 2005a. "The
Decline of Activist Stabilization Policy: Natural Rate
Misperceptions, Learning, and Expectations." Journal
of Economic Dynamics and Control (November), pp.
1927-1950.
Orphanides, Athanasios, and John C. Williams. 2005b. "Imperfect
Knowledge, Inflation Expectations, and Monetary Policy." In The
Inflation-Targeting Debate, eds. B. Bernanke and
M. Woodford. Chicago: University of Chicago Press,
pp. 201-234.
Orphanides, Athanasios, and John C. Williams. 2006. "Inflation
Targeting under Imperfect Knowledge." Forthcoming in Monetary
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1 For a discussion of Fed policy during
this period, see Romer and Romer (2002).
2 Orphanides and Williams (2005a,
b).
3 Orphanides and Williams (2005b)
show that when the central bank has imperfect credibility,
policies that respond relatively weakly to inflation
do worse at stabilizing both inflation and output.
4 See Rudebusch and Williams (2006).
5 See Lange, Sack, and Whitesell (2003)
and Swanson (2006).
6 See Reifschneider and Williams (2000)
for an analysis of monetary policy when inflation rates
are very low.
7 These central banks have also adopted
a full-fledged "inflation targeting" framework. In
addition to stating a numerical inflation objective,
they typically provide a time frame over which inflation
is expected to return to the target level. They also
provide periodic detailed reports on the current and
projected future state of the economy, with a particular
focus on the outlook for inflation. See Bernanke et
al. (1999) and Kuttner (2004) and citations contained
therein for descriptions of inflation targeting practices
around the world.
8 See Orphanides and Williams (2005b,
2006).
9 See, for example, Bernanke et al.
(1999), Johnson (2002), Ball and Sheridan (2004),
and Schmidt-Hebbel and Mishkin (2006).
10 See Kohn (2005).
11 Gürkaynak, Sack, and Swanson
(2003, 2005), Gürkaynak,
Levin, and Swanson (2006), Gürkaynak, Levin, Marder,
and Swanson (2006).
12 See Svensson and Tetlow (2005)
for an example of the type of optimal monetary policy
analysis conducted at the Board of Governors for the
FOMC.
13 See Lebow and Rudd (2003) for
a recent survey of the literature on measurement bias.
Opinions expressed in this newsletter do not necessarily
reflect the views of the management of the Federal
Reserve Bank of San Francisco or of the Board of
Governors of the Federal Reserve System. Comments?
Questions? Contact
us via e-mail or write us at:
Research Department
Federal Reserve Bank of San Francisco
P.O. Box 7702
San Francisco, CA 94120
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