Peter Ireland

Research Papers

Research Paper (pdf): The Evolution of US Monetary Policy: 2000 - 2007
(Revised October 2015) (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): Interest Rates and Money in the Measurement of Monetary Policy
(Revised June 2014) (co-authored with Michael T. Belongia) Over the last twenty-five years, a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies. In light of this work, the Federal Reserve's recent policy of "quantitative easing," with its goal of affecting the supply of liquid assets, appears to be a radical break from standard practice. Alternatively, one could posit that the monetary aggregates, when measured properly, never lost their ability to explain aggregate fluctuations and, for this reason, represent an important omission from standard models and policy discussions. In this context, the new policy initiatives can be characterized simply as conventional attempts to increase money growth. This view is supported by evidence that superlative (Divisia) measures of money often help in forecasting movements in key macroeconomic variables. Moreover, the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary policy shocks. These results cast doubt on the adequacy of conventional models that focus on interest rates alone. They also highlight that all monetary disturbances have an important "quantitative" component, which is captured by movements in a properly measured monetary aggregate.

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): A More Effective Strategy for the Fed
(Revised February 2015) (co-authored with Charles W. Calomiris and Mickey Levy) Throughout much of the post-crisis recovery and expansion, Federal Reserve officials have relied heavily on a variety of labor market indicators to guide their policy actions and explain the effects those actions are having on the economy. Because these variables are influenced by many factors besides monetary policy, however, they have proven unreliable and unpredictable, leading the Fed through a series of awkward policy changes that have confused the public. Instead, the Fed should adopt a policy rule similar to those that have worked successfully in the past to stabilize inflation and, to a lesser but still significant extent, employment as well. By following a rule-based approach, the Fed could normalize its policies and solve many of the problems it has faced recently in communicating its intentions to the public.

Research Paper (pdf): A "Working" Solution to the Question of Nominal GDP Targeting
(Revised January 2014) (co-authored with Michael T. Belongia) Although a number of economists have tried to revive the idea of nominal GDP targeting since the financial crisis of 2008, very little has been said about how this objective might be achieved in practice. This paper adopts and extends a strategy first outlined by Holbrook Working (1923) and later employed by Hallman, et al. (1991) in the P-Star model. It presents a series of theoretical and empirical results to argue that Divisia monetary aggregates can be controlled by the Federal Reserve and that the trend velocities of these aggregates exhibit the stability required to make long-run targeting of a nominal objective feasible.

Published Papers

Older Working Papers and Federal Reserve Publications

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