Why the optimism?

In spite of the recent recession, hopes for the New Economy have been little daunted. Surprisingly robust productivity growth during the recent downturn provides compelling new evidence that something truly fundamental is going on. This Commentary argues that advances in information technology, and their diffusion through the economy, justify our optimism. Higher productivity growth is not an ephemeral phenomenon but one likely to persist for some time into the future, perhaps even accelerating further.Economic conditions - United States ; Labor productivity

Learning rationality, the stability of equilibrium and macroeconomics

A review of the literature concerning how individuals learn to form rational expectations and a discussion of the meaning of rationality in a macroeconomy characterized by highly decentralized markets.Macroeconomics ; Rational expectations (Economic theory)

Rules versus discretion: making a monetary rule operational

A history and analysis of the debate about whether monetary policy should be conducted by rules known in advance to all or by policymaker discretion.Monetary policy - United States ; Monetary policy

Assessing progress toward price stability: looking forward and looking backward

An examination of how to assess the inflationary effects of current monetary policy, reviewing the behavior of a selected measure of core inflation over the past decade and contrasting this pattern with the inflation expectations of both households and professional forecasters, concluding that such expectations are formed rationally.Inflation (Finance)

The stability of money demand, its interest sensitivity, and some implications for money as a policy guide

An examination of recent empirical research on money demand, which states that the interest elasticity of money demand is greater than most economists previously thought. The author discusses the policy implications of this research for both the M1 and M2 measures.Money ; Velocity of money ; Monetary policy

Deregulation, money, and the economy

An examination of the behavior of bank deposit yields and a discussion of some implications for deposit variability and for the interpretation of money growth in the wake of deregulation and other changes in the financial industry in the early 1980s.Bank deposits ; Interest ; Money supply

Assessing real interest rates

An assessment of the usefulness of a real-interest-rate guidepost for communicating long-term monetary policy intentions to the public. The author contends that because of inherent complexities in the relationship between real interest rates and policy objectives, a policy framework expressed in terms of ultimate objectives would be more informative, particularly if it included a nominal anchor on the price level.Interest rates ; Monetary policy

The recent ascent in stock prices: how exuberant are you?

Soaring stock prices continue to pit those who claim that investors are paying too much against those who believe stocks are worth even more. Prices of stocks are determined by people's perceptions of worth, which are themselves based on expectations for the future Although we cannot be sure whether the market is over- or undervalued, we can clarify the factors that determine stock prices and discover the assumptions underlying our expectations. Assessing the consistency of these assumptions may help keep our exuberance in check.Stock - Prices ; Economic conditions - United States

Accelerating money growth: is M2 telling us something?

A look at the recent acceleration in M2, examining evidence that its velocity has stabilized around a new trend, analyzing the usefulness of money in monetary policy deliberations, and highlighting some of the pitfalls of ignoring money growth.Money supply ; Monetary policy ; Velocity of money

Measures of corporate earnings: what number is best?

Revelations of corporate fraud in 2002 shook the public's confidence in financial reporting and led to calls for reform. Without credible, transparent, and comparable financial information, investors, auditors, and others cannot make decisions that are essential to the efficient functioning of the economy. But while rules can be improved, it is not possible to achieve a rigid standard that applies uniformly to every company. This Economic Commentary explains why.Corporate profits