(1) William Easterly shows how imprecise global economic measures--such as global poverty rates and purchasing power parity adjustments--can be. These very numbers have huge policy implications so we need to get them right. Until we do, though, Easterly cautions us about citing them.
(2) The monetary base does matter after all for macroeconomic activity. Most studies show that monetary aggregates, including the monetary base, have not had a robust short-term relationship with nominal spending, inflation, and the real economy since the early 1980s. In other words, what Friedman and Schwartz found in their classic study seems to have largely disappeared over the past 25 years or so. Several recent studies in prominent journals, however, say not so fast. These studies (e.g. here, here) show that if one looks at the monetary base held in the United States--the "domestic adjusted monetary base"--there is still a robust relationship. One of these studies even shows that Bennet McCallum's nominal income targeting rule could still be an effective policy option if the adjusted domestic monetary base were used.
(2) Bill Woolsey responds to this John Taylor interview on the Taylor Rule by taking a close look at its key components and notes that they imply the federal funds rate "for the entire period shows tremendous volatility. Perhaps the CBO estimate of potential output is off. Or, maybe the GDP deflator is the wrong measure of the price level." I would recommend taking a look at the Laubach and Williams output gap measure (Data here). It improves upon the CBO by allowing the growth rate of potential output to vary dramatically in the short run.
(2) The monetary base does matter after all for macroeconomic activity. Most studies show that monetary aggregates, including the monetary base, have not had a robust short-term relationship with nominal spending, inflation, and the real economy since the early 1980s. In other words, what Friedman and Schwartz found in their classic study seems to have largely disappeared over the past 25 years or so. Several recent studies in prominent journals, however, say not so fast. These studies (e.g. here, here) show that if one looks at the monetary base held in the United States--the "domestic adjusted monetary base"--there is still a robust relationship. One of these studies even shows that Bennet McCallum's nominal income targeting rule could still be an effective policy option if the adjusted domestic monetary base were used.
(2) Bill Woolsey responds to this John Taylor interview on the Taylor Rule by taking a close look at its key components and notes that they imply the federal funds rate "for the entire period shows tremendous volatility. Perhaps the CBO estimate of potential output is off. Or, maybe the GDP deflator is the wrong measure of the price level." I would recommend taking a look at the Laubach and Williams output gap measure (Data here). It improves upon the CBO by allowing the growth rate of potential output to vary dramatically in the short run.
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