Identification and the liquidity effect: a case study

This article reviews some of the issues economists confront in attempting to compile facts about how monetary policy actions affect the economy.Monetary policy - United States ; Liquidity (Economics) ; Monetary policy

Resolving the liquidity effect: commentary

Liquidity (Economics)

Understanding Japan's saving rate: the reconstruction hypothesis

This paper evaluates Hayashi's conjecture that Japan's postwar saving experience can be accounted for by the neoclassical model of economic growth as that country's efforts to reconstruct its capital stock that was severely damaged in World War II. I call this the reconstruction hypothesis. I take a simplified version of a standard neoclassical growth model that is in widespread use in macroeconomics and simulate its response to capital destruction. The saving rate path implied by the model differs significantly from the path taken by actual Japanese postwar saving data. I discuss several model modifications which would reconcile the reconstruction hypothesis with Japan's postwar saving experience. For the reconstruction hypothesis to be credible requires independent evidence on the empirical plausibility of the model modifications. It is left to future research to determine whether that evidence exists.Saving and investment ; Japan

Searching For a Break in GNP

It has been suggested that existing estimates of the long-run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in post war U.S. GNP data. This paper shows that the statistical evidence does not warrant abandoning the no trend null hypothesis. A key part of the argument is that conventionally computed significance levels overstate the likelihood of the trend break alternative hypothesis. This is because they do not take into account that, in practice, the break date is chosen based on pre-test examination of the data.

Money and the U.S. economy in the 1980s: a break from the past?

Money supply ; Velocity of money

Government Policy, Credit Markets and Economic Activity

The US government has recently conducted large scale purchases of assets and implemented policies that reduced the cost of funds to financial institutions. Arguably these policies have helped to correct credit market dysfunctions, allowing interest rate spreads to shrink and output to begin a recovery. We study four models of financial frictions which explore different channels by which these effects might have occured. Recent events have sparked a renewed interest in leverage restrictions and the consequences of bailouts of the creditors of banks with under-performing assets. We use two of our models to consider the welfare and other effects of these policies.