Pennies, Pricing, and Rounding: Is all the Relevant Analysis In?

Response to paper by Robert Whaples.

The strategy of monetary policy

An abstract for this article is not available.Monetary policy

Commodity Prices, Interest Rate Spreads and the Exchange Rate: Useful Monetary Policy Indicators or Redundant Information?

We employ actual data from both private and public sector forecasters to conduct a simple, yet stringent test of the potential usefulness of indicator variables for the conduct of monetary policy. That is, we examine whether commodity prices, interest rate spreads and exchange rates can explain incipient errors in the economic forecasts developed by the Fed's staff and the ASA-NBER panel. Our results suggest that these variables do not contain additional information beyond that which policymakers have already incorporated in their forecasts. Hence, monitoring these variables further will not significantly enhance the accuracy of their forecasts, as the information in these variables is largely redundant.Exchange Rates; Fed; Interest Rates; Interest; Monetary Policy; Monetary; Policy

Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination

Ignoring various institutional and structural "details" has devastating implications for a large body of received theoretical and empirical work on the multiplier model, and the positive and normative economics which motivates and flows from it. The major elements of the critique include: the multiplier model is not structural, but rather is a reduced-form; reserves in practice have been endogenously determined; and the predictive accuracy of multiplier models is considerably overstated. So why does the model survive? Attractive pedagogical features, the poor performance of models with more structure, the tendency for recent expositors of the multiplier model to concede many of the points raised by the critique, and the difficulties associated with falsifying such models are emphasized.Money Stock; Money; Multiplier

Eliminating the Penny from the U.S. Coinage System: An Economic Analysis

Removing the penny from circulation will have significant adverse direct effects on consumers. Simulations show that the resulting need to round prices will generate a rounding tax of no less than $600 million a year. The inflationary impact of rounding will probably be small. However, even a small effect will cumulate over time to a considerable sum; removing the penny would raise government outlays by about$950 million in 2005 and by $2 billion in 2010. Significant negative effects on firms are also identified. The evidentiary requirement for removing the penny from circulation does not yet appear to meet necessary standards. If and when seigniorage turns negative and inflation reduces the real value of a penny substantially further, then removal will be more attractive.Coinage