Peter Ireland

Research Papers

Research Paper (pdf): Circumventing the Zero Lower Bound with Monetary Policy Rules Based on Money
(Revised May 2016) (co-authored with Michael T. Belongia) Discussions of monetary policy rules after the 2008-2009 recession highlight the potential impotence of a central bank's actions when the short-term interest rate under its control is limited by the zero lower bound. This perspective assumes, in a manner consistent with the canonical New Keynesian model, that the quantity of money has no role to play in transmitting a central bank's actions to economic activity. This paper examines the validity of this claim and investigates the properties of alternative monetary policy rules based on control of the monetary base or a monetary aggregate in lieu of a short-term interest rate. The results indicate that rules of this type have the potential to guide monetary policy decisions toward the achievement of a long run nominal goal without being constrained by the zero lower bound on a nominal interest rate. They suggest, in particular, that by exerting its influence over the monetary base or a broader aggregate, the Federal Reserve could more effectively stabilize nominal income around a long-run target path, even in a low or zero interest-rate environment.
Appendix with supplementary results

Research Paper (pdf): The Evolution of US Monetary Policy: 2000 - 2007
(Revised February 2016) (co-authored with Michael T. Belongia) This paper estimates a VAR with time-varying parameters to characterize the changes in Federal Reserve policy that occurred from 2000 through 2007 and assess how those changes affected the performance of the US economy. The results point to a gradual shift in the Fed's emphasis over this period, away from stabilizing inflation and towards stabilizing output. A persistent deviation of the federal funds rate from the settings prescribed by the estimated monetary policy rule appears more important, however, in causing inflation to overshoot its target in the years leading up to the Great Recession.

Research Paper (pdf): Monetary Policy, Bond Risk Premia, and the Economy
(Revised September 2015) This paper develops an affine model of the term structure of interest rates in which bond yields are driven by observable and unobservable macroeconomic factors. It imposes restrictions to identify the effects of monetary policy and other structural disturbances on output, inflation, and interest rates and to decompose movements in long-term rates into terms attributable to changing expected future short rates versus risk premia. The estimated model highlights a broad range of channels through which monetary policy affects risk premia and the economy, risk premia affect monetary policy and the economy, and the economy affects monetary policy and risk premia.

Research Paper (pdf): Money and Output: Friedman and Schwartz Revisited
(Revised December 2015) More than fifty years ago, Friedman and Schwartz examined historical data for the United States and found evidence of pro-cyclical movements in the money stock, which led corresponding movements in output. We find similar correlations in more recent data; these appear most clearly when Divisia monetary aggregates are used in place of the Federal Reserve's official, simple-sum measures. When we use information in Divisia money to estimate a structural vector autoregression, identified monetary policy shocks appear to have large and persistent effects on output and prices, with a lag that has lengthened considerably since the early 1980s.

Research Paper (pdf): Money Demand and the Quantity Theory
(Revised February 2015) Discussant's comments: "On the Stability of Money Demand," by Robert E. Lucas, Jr. and Juan Pablo Nicolini, presented at the Carnegie-Rochester-NYU Conference on Public Policy, November 2014.

Research Paper (pdf): Targeting Constant Money Growth at the Zero Lower Bound
(Revised May 2016) (co-authored with Michael T. Belongia) Unconventional policy actions, including quantitative easing and forward guidance, taken by the Federal Reserve during and since the financial crisis and Great Recession of 2007-2009, have been widely interpreted as attempts to influence long-term interest rates after the federal funds rate hit its zero lower bound. Alternatively, similar actions could have been directed at stabilizing the growth rate of a monetary aggregate, so as to maintain a more consistent level of policy accommodation in the face of severe disruptions to the financial sector and the economy at large. This paper bridges the gap between these two views, by developing a structural vector autoregression that uses information contained in both interest rates and a Divisia monetary aggregate to infer the stance of Federal Reserve policy and to gauge its effects on aggregate output and prices. Counterfactual simulations from the SVAR suggest that targeting money growth at the zero lower bound would not only have been feasible, but would also have supported a stronger and more rapid economic recovery since 2010.

Research Paper (pdf): Why Has Nominal Income Growth Been So Slow?
(Revised April 2016) From a monetarist perspective, persistently slow growth in nominal GDP since 2010 signals that, despite several waves of quantitative easing, the Federal Reserve has failed to generate the monetary expansion needed to bring inflation back more quickly to its two percent target. Faster rates of money growth since 2013, however, invite cautious optimism that economic growth and inflation will soon accelerate. And by monitoring more closely the behavior of the broad monetary aggregates, the Fed can guard against raising interest rates too quickly in the months ahead.

Published Papers

Older Working Papers and Federal Reserve Publications

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