Three-And-A-Half Million U.S. Employees Have Been Mislaid: Or, An Explanation of Unemployment, 1934-1941

A major conceptual error in the standard BLS and Lebergott unemployment estimates for 1933-1943 is reported. Emergency workers (employees of federal contracyclical programs such as WPA) were counted as unemployed on a normal-jobs-to-be-created instead of job-seekers unemployment definition. For 1934-1941, the corrected unemployment levels are reduced by two to three-and-a half million people and the rates by 4 to 7 percentage points. The corrected data show strong movement toward the natural unemployment rate after 1933 and are very well explained by an anticipations-search model using annual full-time earnings.

Monetary Policy in the Large Open Economy

This paper discusses recent evidence on the imperfect international substitutability of goods and assets and the implications for conduct of monetary policy in a major industrial country. A simple model is developed for analysis of the simultaneous determination of money growth and the balance of payments under pegged exchange rates. Parallels are drawn to the importance of expected depreciation in determination of floating exchange rates. An assessment is made of the extent to which a central bank can simultaneously pursue both exchange rate and money supply goals through sterilized intervention. The paper concludes with the role of saving rate differences in determining nonzero equilibrium trade balances.

The International Economy as a Source of and Restraint on United States Inflation

The balance of payments, changes in our terms of trade, and other foreign influences are widely believed to be a major, if not the dominant, cause of U.S. inflation. This is possible only if the international economy has caused a significant increase in the growth rate of the nominal quantity of money sup-plied, a significant decrease in the growth rate of the real quantity of money demanded, or both. Unlike non reserve countries maintaining pegged exchange rates, the balance of payments need not influence the growth rate of the nominal quantity of money supplied by the Federal Reserve System. The Fed's reaction function is estimated and no effects of the (scaled) balance-of-payments can be detected. Noris found any other channel by which the international economy has affected the growth rate of the nominal money supply. Changes in the terms of trade will cause some transitory self-reversing effects on real income, real money demand, and the price level and also some permanent shifts in these variables. Because the permanent shifts in the level are nonrecurring, they average out when we examine the average growth rate over substantial periods. Indeed for four year averages, all autonomous variability (domestic and foreign) contributes negligibly (standard error of O.4 percent per annum) to variations in average inflation. Thus, except possibly a supporting role in the short run, international economy has contributed negligibly to U.S. inflation.