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Working Paper Series

What Is the Monetary Standard?

WP 15-16

This paper can be downloaded without charge from:
http://www.richmondfed.org/publications/

Robert L. Hetzel
Federal Reserve Bank of Richmond

What Is the Monetary Standard?
Robert L. Hetzel
Federal Reserve Bank of Richmond
Richmond, VA 23261
robert.hetzel@rich.frb.org
November 9, 2015
Working Paper No. 15-16

The monetary standard emerges out of the interaction of monetary policy with the structure
of the economy. Characterization of the monetary standard thus requires specification of a
model of the economy with a central bank reaction function. Such a specification raises all
the fundamental issues of identification in macroeconomics.

Miki Doan provided invaluable research assistance. The views expressed here are those of
the author not the Federal Reserve Bank of Richmond or the Federal Reserve System.
JEL classification code: E50
*The author is Senior Economist and Research Advisor at the Federal Reserve Bank of
Richmond.

The monetary standard emerges out of the way in which the behavior of the central bank interacts
with the structure of the economy. The following contrasts an understanding of the monetary
standard in the monetarist tradition where economic disturbances are assumed to originate with
monetary disturbances with an understanding of the monetary standard in which economic
disturbances are assumed to originate in the private sector.
The monetarist tradition assumes that the central bank should follow a rule that provides for a stable
nominal anchor and that allows the price system to work freely to determine real variables like output
and employment. Apart from the real-business-cycle approach to cyclical fluctuations, a common
denominator among alternatives to this monetarist tradition involves “imbalances” of some sort that
reflect a weakly equilibrating price system. In the context of debate over the Great Recession, the
terminology of “speculative excess” expresses these views. This paper uses the New Keynesian
framework in order to highlight differences in understanding of the monetary standard and to clarify
the issues that arise in identifying the actual and optimal monetary standard.
Section 1 exposits the Aoki (2001) version of the New Keynesian model in a way that highlights
contrasting views on the nature of the monetary standard. Sections 2 and 3 organize, respectively,
the kinds of stylized facts that the different approaches attempt to explain. Section 4 offers
concluding comments about the kind of central bank transparency that would facilitate learning about
the monetary standard.
1.

The New Keynesian model

This section exposits the New Keynesian (NK) model in Aoki (2001) with flexible-price and stickyprice sectors but with the addition of a “cost-push” shock to the Phillips curve as in Clarida, Gali, and
Gertler (1999). There is a single flexible-price good and a continuum of differentiated goods in the
sticky-price sector. Household i maximizes (1).

(1) E0 ∑ t =0 β t [u ( Bi ,t Cti ) − v( Ai ,t yti )]
∞

where u expresses the utility from consumption and v expresses the disutility from the household
production of the good yti with β the rate of time preference. The B and A are shocks. Cti
aggregates the household’s purchases of the flexible-price good and the differentiated goods with the
latter aggregated into an index number. The household’s optimal consumption (Euler equation) must
satisfy (2).

(2)

Bt u ' ( Bt Ct )
= Λt
Pt

where Pt is the aggregate price level, which in turn is an average of the price level in the flexibleprice and sticky-price sectors. Λ t is the marginal utility of nominal income.

It also follows that

(3) = β Rt ( Et Λ t +1 )
Λt

where Rt is the gross nominal interest rate. The aggregate-demand relationship (4) comes from loglinearizing (2) and (3) around the steady state with price stability. 1 The real rate of interest is
^

r t ≡ Rt − Et Π t +1 . Π t+1 is inflation between periods t and t+1. Aggregate output is Y t . (The
circumflex indicates the percentage deviation from the steady-state value.) The household’s
intertemporal elasticity of substitution in consumption is σ .

(4) rt
=

^
^
1 ^
  ^

 Et Y t +1 − Yt  +  Et B t +1 − B t 
σ
 

^

Comparable to (4), there will be a relationship (5) between the natural rate of interest ( r tn ) and the
^

natural rate of output ( Y tn ) where these variables are defined as the values that would occur with
complete price flexibility.
^

(5) =
r tn

^
^
1 ^n
  ^

Et Y t +1− Y tn  +  Et B t +1 − B t 

σ

 

Using these (4) and (5), as shown in (6), there is a relationship between the real rate of interest and
^

the natural rate of interest. It depends upon the aggregate output gap ( Gt ), which is a weightedaverage of the output gaps in the sticky-price and flexible-price sectors with the weights coming from
^

the weights in the consumption aggregator of flexible-price and sticky-price goods. Y n ,t and Y n t are
F,
S
the natural rates of output in the sticky-price and flexible-price sectors, respectively. γ assigns
relative weights to the sticky-price and flexible-price goods in the consumption aggregator.
^
^
^
1 ^

(6) r t = Et G t +1 − Gt 
r tn + 
σ


(7) G t ≡ γ (Y t − Y n ,t ) + (1 − γ )(Y t − Y n ,t )
S
F
Equation (8) is the NK Phillips curve. κ1 and κ 2 summarize preference parameters and the degree-of^

price-stickiness parameter. The variable x F ,t is the relative price of the good in the sticky-price
sector in terms of the good in the flexible-price sector. As in Clarida, Gali, and Gertler (1999), (8)
^

adds a markup shock ( µt ). Π S ,t is inflation in the sticky-price sector.

^
^
^
^
^

The more common form of (4) is Y t = Et Y t +1 − σ  r t − ( Et B t +1− B t )  .



(8) Π S= κ1 (Y t − Y n ,t ) + β Et Π S ,t +1 +
,t
S

1− γ

κ 2 x F ,t + µt

Equation (8) can also be written as (9).
^

(9) Π S ,t
=

κ1 G t + β Et Π S ,t +1 + µt

Solving (9) forward yields (10).

(10) Π S ,t
=

∞

κ1Et ∑  β i G t +i + µt +i 


i =0





The Phillips curves (8) and (9) are derived under the assumption that the central bank has an inflation
target of zero. Inflation then measures deviations from price stability. The µt arise out of changes in
the extent of monopoly power (the markup) of firms in the sticky-price sector (Blanchard and Gali
2007). These markup shocks affect the monopoly power of firms without affecting real marginal
cost (Blanchard and Gali 2007, 39; Woodford 2003, 451-2). They do not reflect inflation shocks
coming from the flexible-price sector.
As illustrated by (9), in the absence of markup shocks, if the central bank maintains price stability in
^

the sticky-price sector so that Π S ,t = Et Π S ,t +1= 0 , it also maintains the aggregate output gap ( G t )
equal to zero. Blanchard and Gali (2007) characterized this combination of price stability and a zero
aggregate output gap as “divine coincidence,” a model characteristic first noted in Goodfriend and
King (1997). Equation (11) is a monetary policy rule that produces this result. 2
^

(11)

R t = r tn + α t Π S ,t
^

The rule (12), which includes (11) as a special case, introduces the term α (Π S ,t − Π nz,t ) as a way of
S
marking departures of the policy rule from the divine-coincidence benchmark (11). With (12), the
^

central bank moves its inflation target ( Π nz,t ) in order to partially accommodate the impact of
S
markup shocks on inflation as a way of attenuating the need for a negative output gap to maintain

Rt = ψπ t with ψ > 0 is a rule that also achieves the divine-coincidence result, assuming an inflation

target of zero. Divine coincidence is an expression of the monetarist hypothesis that if the central
bank maintains monetary (nominal) stability the price system will work well to ameliorate cyclical
fluctuations.

4
price stability.
^

(12) R t= r tn + α (Π S ,t − Π nz,t )
S
Blanchard and Gali (2007) examined the implications of the NK model for policy. The elimination
of price stickiness and firm monopoly power provides a norm for the “welfare-maximizing” level of
output. There is also a level of output assuming “price-flexibility-only” that eliminates just the
friction of price stickiness and yields a lower level of welfare. Shocks that shift both the “welfaremaximizing” and the “price-flexibility-only” level of output equally leave (11) as the optimal policy
rule, which implements divine coincidence by stabilizing the price level in the sticky-price sector.
With shocks to tastes and technology, the central bank should stick with this baseline rule that keeps
the aggregate output gap equal to zero by maintaining price stability in the sticky-price sector.
A positive markup shock offers the possibility for the central bank to intervene in the operation of the
real economy. By expanding the wedge between price and marginal cost for firms with monopoly
power, the increase in monopoly power retracts the price-flexibility-only level of output without
affecting the welfare-maximizing level of output. A policy of maintaining price stability requires the
central bank to create a negative output gap. In principle, the central bank can produce an optimal
amount of inflation and output variability. It can improve welfare by exploiting a Phillips-curve
trade-off.
Equation (13) adds a money demand function.

(13) mt − pt = yt − η it
The log of nominal money is mt , the log of the price level pt , the log of output is yt , and the semielasticity of money demand with respect to the interest rate is η . In order to prevent changes in the
price level, the central bank must follow a rule that causes nominal money, mt , to grow in line with
real money demand, yt − η it . The divine-coincidence characteristic of the NK model elucidates that
rule. With an interest rate target, nominal money is demand determined. The rule (11) disciplines
^

that nominal demand to equal Y tn − η rt n . 3 In a world of stable money demand, monetarists argued
that sustained monetary decelerations or accelerations arise out of a monetary policy based on the
rule (12) when (11) is appropriate. Given stocky prices, by forcing changes in the price level, money
then is an independent source of disturbance.
If markup shocks are unimportant empirically, the central bank can remove the price-stickiness
friction in (9) through maintaining price stability in the sticky-price sector. Then, as expressed in (4),
households can borrow and lend in an unconstrained way in order to smooth their consumption
optimally over time. Because the central bank does not need to worry about market power producing

Friedman (1960) formulated his k-percent rule for low, stable money growth at a time when there
existed a monetary aggregate stably related to nominal output and when potential output grew
steadily. In this world of stable velocity (stable real money demand and low interest-inelasticity of
real money demand), the monetarist hypothesis was that a k-percent rule would implement divine
coincidence by keeping real variables at their natural values and by providing for price stability.

5
exogenous increases in the price level, it achieves the divine coincidence result by pursuing an
objective of price stability in the sticky-price sector.
In contrast, as represented by markup shocks, if the exercise of monopoly power by firms is
important, the central bank cannot maintain both output and price stability. Speculative-excess
models emphasize sudden shifts from optimism to pessimism about the future—Keynes’s animal
^
 ^

spirits. They appear in (4) as the  Et B t +1 − B t  . Such models add a financial sector with frictions so


that these shifts cause cyclical fluctuations. While the monetarist view is nonactivist in spirit, the
alternative views are activist in that they emphasize exploiting Phillips curve trade-offs or
macroprudential regulation to limit risk taking by households and banks. The narratives employed
by nonactivist and activist views emphasize different correlations in the data. The following first
provides an overview of the monetarist (nonactivist) view.
2.

Organizing the data: the monetarist view

Milton Friedman gave predictive content to the quantity theory in a way captured by the divinecoincidence version of the NK model. He assumed that the central bank had to operate with a rule
that provided a stable nominal anchor. Beyond that, it had to allow market forces to determine real
variables. In terms of the NK model, the central bank controls trend inflation through the way that its
rule conditions the price setting of firms in the sticky-price sector. While true that in the NK model
there is a structural Phillips curve relationship, in practice, attempts to manipulate a trade-off
between inflation and the output gap have foundered. As a matter of practical experience, such
attempts inappropriately frustrated the operation of the rule designed to achieve the divinecoincidence result.
If the monetarist view is correct that the price system works well to attenuate cyclical fluctuations in
the absence of monetary disturbances, given that recessions are infrequent events, it follows that the
central bank possesses a baseline rule that allows the price system to work. The research agenda then
is to identify this rule in a way that highlights departures and to ascertain whether those departures
are a necessary and sufficient condition for recessions. Historically, monetarists flagged such
departures as attempts by the central bank to maintain the exchange rate at a level that overvalued the
exports of a country or as attempts by the central bank to control real variables like the
unemployment rate. They attributed the associated monetary instability to such attempts.
Most famously, Friedman and Schwartz showed that monetary contractions predicted cyclical peaks.
Figures 1 and 2 show annualized M1 growth rates. Following Friedman and Schwartz (1963b), as a
visual aid to seeing the alternating intervals of “low” and “high” growth rates, the figures fit step
functions to the monthly observations. The figures highlight the monetary decelerations prior to
business cycle peaks. For the period 1963 until 1981, Figure 3 shows that the weakening of
economic activity that precedes cyclical peaks is associated with the declines in the steps of the M1
step function. Thereafter, in the United States, money growth ceased to offer a straightforward
measure of the stance of monetary policy. 4

Starting in 1981, the phasing out of Reg Q, which fixed the rates on bank time deposits below
market rates, caused real M1demand to become interest sensitive. As a result, it gives off misleading
signals about the stance of monetary policy by strengthening when the economy weakened and vice

6
For the post-1981 period, however, as shown in Figure 4, the earlier pattern persists of a weakening
economy prior to cyclical peaks. Figures 5 and 6 show how prior to cycle peaks consumption falls
off relative to the intra-cycle trend. 5 Figures 7 and 8 show how the FOMC maintained nominal and
real interest rates at cyclically high levels going into cyclical downturns despite the weakening
economy. 6
Although the real rate falls in recession, once past the business cycle peak, as shown in Figure 9, the
magnitude of the output gap increases rapidly as the inventory cycle unfolds. Standard Fed rhetoric
is that because interest rates are at cyclical lows during recessions, monetary policy is easy.
However, the relevant characteristic of policy is the inertia the FOMC imparts to the funds rate prior
to the cycle peak while the economy weakens. Although the FOMC never talks in terms of tradeoffs, effectively at these times it was trying to create a negative output gap in order to lower
inflation. 7
Figures 10 and 11 serve to organize the narrative that motivates FOMC behavior. Going into
recessions, inflation (the sold line) is at a cyclical high. Examination of FOMC transcripts shows
that the priority of the FOMC at these times was to reduce inflation (Hetzel 2008, 2012; Romer and
Romer 1989). As a consequence, the FOMC raised the funds rate until the economy weakened as
illustrated by the way in which consumption fell below trend (dashed line). It then maintained a
cyclically high rate while the economy weakened. Over the course of the recession, the real rate
(diamonds) declined. With the exception of the recovery from the July 1981 to November 1982
cyclical contraction, during the economic recovery short-term real interest rates fell to zero. 8

versa. Also, in periods of financial stress, the narrow aggregates like M1 grow rapidly as market
participants seek liquidity. More generally, by endowing debt instruments with liquidity, innovation
in financial markets has obscured the moneyness represented by various aggregates. Finally, there
are pure measurement issues. After the mid-1990s, the Fed did not record the amount of deposits
removed from bank balance sheets by swap arrangements and did not record the deposits moved
offshore in order to avoid FDIC premia. In 2011, the combination of low interest rates and a change
in how the FDIC calculated its insurance premia caused banks to put these “missing” deposits back
on their balance sheets.
5

A single trend line is fitted to the short 1980 recession and the 1981-1982 recession.

Figure 7 uses inflation forecasts from the Livingston survey, which are biannual and become
available in 1946. Figure 8 uses inflation forecasts contained in the Board of Governors staff
document called the Greenbook prepared before FOMC meetings. They first became available in
November 1965 and correspond to FOMC meetings.

In the pre-World War II period, the analogue was the Fed’s use of discount rate increases followed
by downward cyclical inertia as the economy weakened in order to lower prices (commodity prices
or equity prices) considered as elevated through speculative excess (Friedman and Schwartz 1963a).
8

The Economic Recovery Tax Act of 1981 along with the prospect of reduced inflation, which
would reverse the way that inflation interacted with a tax code not indexed for inflation to raise
sharply corporate tax rates, reduced expected corporate taxes (Hetzel 2008, 147-9). The revival of
corporate investment presumably kept real interest rates at cyclical highs during the economic
recovery from the 1981-1982 recession. Along with the failure of the near-zero level of interest rates
after December 2008 to revive inflation, this instance illustrates the monetarist criticism of inferring
the stance of monetary policy from the level of interest rates.

7
However, by then it was too late to undue the effects of contractionary monetary policy.
Although the FOMC does not use the language of trade-offs, these episodes represented a departure
from the FOMC’s standard lean-against-the-wind procedures. By limiting downward movement in
the funds rate while the economy weakened, they represented attempts to create a negative output
gap in order to reduce inflation. William McChesney Martin characterized monetary policy as “leanagainst-the-wind” (LAW). 9 Examination of a wide variety of information about the policy process
including records of meetings, speeches, and the intellectual and political environment that has
shaped policy makers’ understanding of and approach toward policy yields a basic generalization
about these procedures (Hetzel 2008). In a measured, persistent way, the FOMC raises the policy
rate above its prevailing value when output grows at a sustained rate in excess of potential (rates of
resource utilization are increasing and the unemployment rate is falling), and conversely in the case
of sustained economic weakness. 10
As a first pass, because positive growth gaps are associated empirically with optimism about the
future while negative growth gaps are associated with pessimism about the future, LAW procedures
indicate the appropriate direction of movement in the interest rate. If output is growing
unsustainably fast, then the real interest rate must rise in order to limit aggregate demand by
increasing the incentive to save (transfer resources to the future). Beyond this first pass, at FOMC
meetings, participants report on a wide variety of anecdotal information gleaned from contacts with
the business community. The FOMC uses this sort of information as confirming evidence about its
assessment of sentiment toward the future. Does above trend growth translate into optimism about
the future that causes households to want to take on debt and transfer consumption from the future
into the present? Based on these LAW procedures, the FOMC chooses the interest rate target and a
message to financial markets about the likely persistence of that target. 11
During the Great Recession, monetary policy followed the pattern of earlier recessions. The

Economists who perform model simulations find it convenient to use a Taylor rule as a reaction
function for the FOMC. However, for a number of reasons, this practice is uninformative if the
intention is to identify monetary policy shocks. Although the Taylor rule can capture the correlation
between short-term interest rates and cyclicality in economic activity and inflation, it is a reducedfrom relationship. It does not capture the functional form of the reaction function used by the
FOMC. The FOMC has never found it practicable to reach a quantitative consensus over the output
gap as part of its decision-making process. Moreover, the Taylor rule does not capture the way in
which the FOMC monitors the behavior of the term structure of interest rates for information about
the level of rates required in order to achieve low, stable inflation.

In periods of economic recovery, output grows in a sustained way above trend. The FOMC then
assesses whether the upward slope in the yield curve and implied rise in forward rates is an adequate
guide to maintaining growth at a gradually declining rate consistent with a return to steady growth
that no longer reduces rates of resource utilization.
11

In the model, Rt should be understood as the level of the term structure of interest rates. The
FOMC sets the level through the way in which it changes its funds rate target and the way in which it
communicates the likely persistence in those changes. In the post-December 2008 period, the FOMC
influenced the term structure through the way in which it communicated the conditions that would
initiate lift-off.

8
difference was that the unacceptably high inflation in 2007 and 2008 emerged not from prior
monetary expansion but rather from a prolonged inflation shock. Illustrative of the increase in
commodity prices, Figure 12 shows the sustained rise in the real price of oil that began in summer
2004 and peaked in summer 2008. Figure 13 shows how the inflation shock pushed headline
inflation above core inflation in this period.
One characteristic of the Great Recession is the almost simultaneous occurrence of business cycle
peaks in the developed countries. One explanation for this common behavior is the similar response
of central banks to the prolonged inflation shock. Similarly to the stop phases of past recessions, the
central banks of the developed countries kept interest rates at cyclical highs while their economies
weakened in order to create a negative output gap that would restrain headline inflation. In terms of
the model in Aoki (2001), central banks should have allowed relative prices to change by allowing
headline inflation to rise above core inflation. That is, they should have confined policy to
stabilizing policy in the sticky-price sector. Aoki (2001, 75) summarized:
[S]uppose there is an increase in the price of food and energy … putting an upward pressure
on aggregate inflation…. The central bank could respond with a sharp contractionary policy
and reduce aggregate demand by a large amount so as to decrease prices in the sticky-price
sector…. However, our model shows that such a policy is not optimal. The optimal policy is
to stabilize core inflation.
An explanation for what made the Great Recession so severe and prevented a V-shaped recovery is
the reemergence of the inflation shock in 2010 with the recovery from the recession and the revival
of demand for commodities (Figures 12 and 13). Again, central banks limited increases in aggregate
nominal demand in order to limit increases in headline inflation above their 2 percent targets. At the
same time, the negative impact of the inflation shock on the real disposable income of households
likely made households pessimistic about the future and lowered the natural rate of interest. 12 As
shown in Figure 13, starting in early 2007, consumption and disposable income declined in tandem. 13
For the United States, the interest sensitivity of money demand obscures the classic leading indicator
property of money for the Great Recession. Figure 15 displays M2 growth and the opportunity cost
of holding M2. Given the sharp drop in the opportunity cost of holding M2 starting in 2007, the
stability of M2 growth in 2007-2008 indicates contractionary monetary policy. M2 growth should
have increased rapidly. 14

As shown in (6), a real rate below the natural rate of interest requires that households expect that
the output gap will decline. By 2008, the persistence of the inflation shock may have created this
expectation
13

The shortfall of real personal disposable income below consumption in 1999 and again in 2005
corresponds to increases in energy (oil) prices (Figure 12).
14

From January 2007 through September 2008, the opportunity cost of holding M2 fell by 2.8
percentage points. Hetzel (2008, Table 14.1) estimated an (semi-log) interest elasticity of demand
for real M2 of 1.6. Real M2 demand then increased by 4.5% while M2 increased by 10.6% over this
19 month interval. Assuming the long-run historical value of M2 velocity of one, these figures are
consistent with annualized growth in nominal GDP of only 3.1% [(10.6 – 4.5) = 6.1% with 6.1 taken
to the 12/19 power]. For a sophisticated study of M2 demand, see Anderson et al (2015).

9
As shown in Figures 16 to 19, both the Eurozone and the United Kingdom followed the pattern
highlighted by monetarists (Hetzel 2013). In both cases, the central banks kept real interest rates at
cyclically high levels going into the recession. With a lag of 4 quarters in the Eurozone and two
quarters in the UK, growth of nominal GDP declined following the decline in money growth.
3.

Organizing the data: the imbalances view

The historical, default view of economic disorder is that it arises in response to the inevitable
unwinding of accumulated imbalances in the private sector. Those imbalances in turn arise in a
general way from the exercise of market power. Explanations of inflation that turned on cost-push
and wage-price-spirals emphasized the monopoly power of corporations and unions. Real bills
views, which highlighted the collapse of speculative excess, stressed the exercise of market power in
the form of the herd behavior of investors. Investor beliefs about the future shift collectively from
excessive optimism to excessive pessimism.
According to the Keynesian consensus of the 1960s and 1970s, shifting investor sentiment created
investment booms and busts that powered the business cycle. In a similar spirit, much present work
on cyclical fluctuations highlights shifts in investor sentiment toward risk reflected in fundamental
shocks to uncertainty and rates of time preference. Similarly, sunspots coordinate changes in
investor sentiment toward the future. Discussion centers on whether and how central banks should
respond to “asset bubbles.”
Galbraith (1993), Kindleberger and Aliber (2011), and Minsky (1986) are exponents of the
speculative-excess view. This view emphasizes the correlation between the expansion phase of the
business cycle and optimism about the future of households and firms. Given that optimism, they
take on debt. In the succeeding contraction phase, there is a correlation between pessimism about the
future and attempts to reduce debt.
Economists in the Keynesian tradition give these correlations a causal interpretation by attributing
the shock that drives cyclical alternations to “animal spirits:” irrational shifts from excessive
optimism to excessive pessimism. The resulting alternation between speculative excess and collapse
overwhelms the stabilizing properties of the price system. On the one hand, the stickiness of nominal
(dollar) prices prevents the market clearing required in order to maintain full employment. On the
other hand, that nominal stickiness endows the central bank with the ability to engage in
countercyclical monetary policy.
^
 ^

As noted in section 1, a change from positive to negative in (4) in the term  Et B t +1 − B t  can capture


a shift from optimism to pessimism about the future. Current models of financial excess add a
financial sector with frictions in order to allow these shifts to cause cyclical fluctuations. Figure 20
plots the yield spreads of the Aaa corporate bond yield and the Baa corporate bond yield with the tenyear Treasury bill yield. The latter especially is used as a measure of how risk in financial markets
increases around recessions. The graph itself of course indicates nothing about whether the increase
in risk sentiment is derivative from some other shock or can be taken as a fundamental driver of the
business cycle as assumed in theories that highlight the collapse of speculative excess. 15

As shown in (6), the real rate equals the natural rate plus a term measuring the expected growth in

10
In models that transmit increases in risk aversion to the real sector through financial frictions, banks
restrict the flow of credit to firms with viable investment projects. As a measure of stress on the
banking sector, Figure 21 plots the three-month CD rate minus the three-month Treasury bill rate. It
does increase in the deep recessions of 1973-1974, 1981-1982, and 2008-2009. However, in the last
recession, the impression is dominated by a single observation at the time of the Lehman bankruptcy.
If firm activity is limited through credit rationing, small businesses, which lack access to the
commercial paper and capital markets and lack relationships with multiple banks should be most
affected. In this respect, the survey from the NFIB (National Federation of Independent Business)
shown in Figure 22 is especially informative. One of the monthly survey questions asks businesses
to choose from a list of questions their most important problem. The fact that very few mentioned
obtaining financing as a problem suggests that in the last recession a credit channel was not a major
issue.
Atif Mian and Amir Sufi (2010, p. 55 and 2011, p. 2155) promote a different version of the
speculative-excess view:
Our central argument is that an outward shift in the supply of credit from 2002 to 2006 was a
primary driver of the macroeconomic cycle of 2002 to 2009…. The link we show between
house prices and household borrowing suggests that housing and household leverage play an
important role in macroeconomic fluctuations….
Mian and Sufi (2010, p. 52 and 2011, p. 2155) also show that the effect on expenditure of the rise
and fall of house prices in the 2002 to 2005 and 2006 to 2009 periods, respectively, was concentrated
among households with weak credit scores.
[T]he mortgage default crisis started and remains most pronounced in high subprime share
zip codes, which correspond to the top quartile based on the fraction of borrowers in the zip
code with a credit score less than 660 as of 2000…. In addition, we show that the effect of
house prices on borrowing is not uniform across the population but concentrates largely
among homeowners with low credit scores and a high propensity to borrow on credit
cards…. Indeed, Mian and Sufi (2010) show that changes in household leverage at the county
level serve as an early and powerful predictor of the onset and severity of the recession of
2007 to 2009.
Figure 23 shows that prior to business cycle peaks growth in household debt and consumption
increase although for the recent recession the growth rate in consumption is mild compared to
previous business cycles. Figure 24 shows the decline in home equity wealth prior to the December
2007 cycle peak. Figure 25 shows the growth rate of personal consumption expenditures along with
two measures of house prices. The relevant one for evaluating the Mian-Sufi hypothesis about the
driving role of house wealth in the Great Recession is the FHFA series. It measures house prices for
houses with conforming Fannie Mae and Freddie Mac mortgages and omits the houses with the more
expensive jumbo mortgages. The high income households that take the jumbo mortgages are not the

the output gap. In the prolonged recovery from the Great Recession, the real rate has remained low.
Given the implausibility of a continually expected decline in the output gap, estimated DSGE models
impute persistent negative shocks to rates of time preference. Those shocks appear as “financial”
shocks. However, the real rate may have remained low due to precautionary savings undertaken to
guard against left tail risk not captured given the linear character of the model (Guvenen et al 2014).

11
credit-constrained households that Mian and Sufi focus on. 16
As shown in Figure 25, the significant rise in house prices that began in 1997 did not obviously affect
aggregate consumption. Moreover, the decline in the growth rate of consumption preceded the
decline in the FHFA house price index. As shown in Figure 14, once the recession began, growth in
real personal consumption expenditures fell below growth in real personal disposable income. That
fact is consistent with debt overhang constituting a propagating mechanism.
Mian and Sufi present evidence consistent with the fall in house prices limiting the purchase of
automobiles of credit-constrained households. However, that fact is consistent with the hypothesis
that an adverse real shock will not translate into a serious recession in the absence of contractionary
monetary policy. Moreover, their results highlight the difficulty of identification. An inflation shock
that increases the relative price of gasoline and food will affect lower income households
disproportionately and depress their purchases of automobiles. Those households are the ones
captured by the low FICO scores highlighted by Mian and Sufi.
One way to distinguish between a monetary shock and a shock caused by an exogenous rise and fall
of asset prices is that only the former possesses clear implications for inflation. Figure 13, which
plots headline and core inflation, reveals a decline in core inflation from 2.2% over the interval
August 2004 through August 2008 to 1.5% over the interval April 2013 through September 2015.
That decline is impressive because of the stability of expected inflation.
4.

Learning about the nature of the monetary standard

The creation of the Federal Reserve System corresponded closely in time to the abandonment of
commodity standards in favor of paper money standards. Since 1914, the Fed has engaged in a
process of trial and error over how to manage a paper standard. That process created the semicontrolled experiments that allow learning about the optimal monetary standard. However, learning
is exceedingly difficult. A major reason is the difficulty in characterizing the systematic character of
the policy process and its evolution. The language of discretion allows the Fed to communicate in a
way that deflects political attack. Each individual policy action is defensible in terms of the
economy’s contemporaneously most pressing problem. However, that language obscures the
systematic nature of monetary policy and renders learning difficult.
For learning to occur systematically rather than haphazardly, it is important that policy makers be
explicit about their understanding of the monetary standard. Because monetary policy emerges out
of their implicit understanding, explicitness facilitates communication among policy makers
themselves. Explicitness also promotes an exchange of ideas between policymakers and the wider
audience of academics, politicians, and the informed public.

The Case-Shiller series is computed for a sample of only 20 unrepresentative cities.

12
References
Aoki, Kosuke. “Optimal Monetary Policy Responses to Relative-Price Changes.” Journal of
Monetary Economics 48 (2001), 55-80.
Anderson, Richard G. Michael Bordo, and John V. Duca. “Money and Velocity during Financial
Crisis: From the Great Depression to the Great Recession.” Federal Reserve Bank of Dallas
Working Paper 1503, June 2015.
Bennett, Barbara A. “‘Shift Adjustments’ to the Monetary Aggregates.” Federal Reserve Bank of San
Francisco Economic Review (Spring 1982), 6-18.
Blanchard, Olivier and Jordi Gali. “Real Wage Rigidities and the New Keynesian Model.” Journal of
Money, Credit, and Banking 39 (February 2007), 35-65.
Clarida, Richard, Jordi Gali and Mark Gertler. “The Science of Monetary Policy: A New Keynesian
Perspective.” Journal of Economic Literature 37 (December 1999), 1661-1707.
Friedman, Milton and Anna J. Schwartz. A Monetary History of the United States, 1867-1960.
Princeton: Princeton University Press, 1963a.
_____. “Money and Business Cycles.” Review of Economics and Statistics 45 (February 1963b),
32-64.
_____. Monetary Statistics of the United States. New York: National Bureau of Economic Research,
1970.
Galbraith, John K. A Short History of Financial Euphoria. Whittle Books, 1993.
Goodfriend, Marvin and Robert G. King. “The New Neoclassical Synthesis.” NBER
Macroeconomics Annual, eds. Ben S. Bernanke and Julio Rotemberg, 1997.
Guvenen, Fatih; Serdar Ozkan; and Jae Song. “The Nature of Countercyclical Income Risk.” Journal
of Political Economy 122, 2014, 621-660.
Hetzel, Robert L. The Monetary Policy of the Federal Reserve: A History. Cambridge: Cambridge
University Press, 2008.
_____. The Great Recession: Market Failure or Policy Failure? Cambridge: Cambridge University
Press, 2012.
_____. “ECB Monetary Policy in the Great Recession: A New Keynesian (Old Monetarist) Critique,”
Federal Reserve Bank of Richmond Working Paper, 13-07R, July 2013.
Kindleberger, Charles P. and Robert Z. Aliber. Manias, Panics, and Crashes : A History of Financial
Crises. Palgrave Macmillan, 6th ed. |2011.
Meltzer, Allan H. A History of the Federal Reserve, vol. 1, 1913-1951. Chicago: University of
Chicago Press, 2003.
_____. A History of the Federal Reserve, vol. 2, Book 2, 1970-1986. Chicago: University of Chicago
Press, 2009.
Mian, Atif and Amir Sufi. “The Great Recession: Lessons from Microeconomic Data.” The
American Economic Review 100, Papers and Proceedings of the One Hundred Twenty
Second Annual Meeting of the American Economic Association (May 2010), 51-56.
_____. “House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis” The

13
American Economic Review 101, (August 2011), 2132-2156.
Minsky, Hyman P. Stabilizing an Unstable Economy. New Haven: Yale University Press, 1986.
Romer, Christina D. and David H. Romer. “Does Monetary Policy Matter? A New Test in the Spirit
of Friedman and Schwartz.” in NBER Macroeconomics Annual 1989, vol. 4, pp. 121-170.

Figure 1
M1 Step Function and Recessions: 1906-1945
60

Percent

-10

-20

-30

-40

-40
1906

1908

1910

1912

1914

1916

1918

1920

1922

1924

1926

1928

1930

1932

1934

1936

1938

1940

1942

1944

Notes: Series are a three-month moving average of the annualized monthly money growth rates and a step function fitted to monthly annualized
growth rates of money. Step function before May 1907 uses annual growth rates based on June observations of M2 from 1900-1907. Observations for
money from June 1900 to May 1914 are for M2; observations from June 1914 to December 1945 are for M1. Data are from Friedman and Schwartz
(1970). Shaded areas indicate NBER recessions. Heavy tick marks indicate December.

Figure 2
M1 Step Function and Recessions: 1946-1981
18

Percent

-2

-4

-6

-6
1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

Notes: Series are a three-month moving average of the annualized monthly money growth rates and a step function fitted to monthly annualized growth
rates of money. Data on money (M1) from January 1946 to December 1958 from Friedman & Schwartz (1970). From January 1959 to December
1980 data from Board of Governors. January 1981 to December 1981 M1 is "shift-adjusted M1" (Bennett 1982). Shaded areas indicate NBER
recessions. Heavy tick marks indicate December.

Figure 3
Real Output Growth and M1 Step Function
10

Percent

M1 Step

-2

Real Output Growth
Quarterly annualized Real GDP

-4

-6

-6
1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

Notes: The M1 steps are an average of the annualized quarterly M1 growth rates. In 1981, M1 is "shift adjusted" (Bennett 1982). Real output growth is 4-quarter
percentage changes in real GDP. Quarterly annualized real GDP is annualized quarterly growth rates. Shaded areas indicate NBER recessions. Heavy tick marks
indicate fourth quarter.

Figure 4
Real Output Growth
10

Percent

-2

-2
Real Output Growth

-4

-4
Quarterly annualized Real GDP

-6

-6
1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Notes: Real output growth is 4-quarter percentage changes in real GDP. Quarterly annualized real GDP is quarterly annualized growth rates. Shaded areas indicate
NBER recessions. Heavy tick marks indicate fourth quarter. Source: Haver Analytics.

Figure 5
Real Personal Consumption Expenditures and Cycle Trend
Percent

Percent

Cycle Trend

Real PCE

3.1%

20
4.8%

3.6%

-5

-10

-10
1964
1966
1968
1970
1972
1978
1980
1982
1960
1962
1974
1976
Notes: Observations are the natural logarithm of monthly observations of real personal consumption expenditures normalized using the value at the
prior business cycle peak. Trend lines are fitted to these observations between peaks in the business cycle. The trend lines are extended through the
subsequent recession. Shaded areas indicate NBER recessions. Heavy tick marks indicate December. Source Haver Analytics.

Figure 6
Real Personal Consumption Expenditures and Cycle Trend
Percent

Percent

45
Cycle Trend

Real PCE

40
4.2%

3.2%

3.8%
20

10
1.7%

-5

-10

-10
1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Notes: Observations are the natural logarithm of monthly observations of real personal consumption expenditures normalized using the value at the prior
business cycle peak. Trend lines are fitted to these observations between peaks in the business cycle. The trend lines are extended through the
subsequent recession. Shaded areas indicate NBER recessions. Heavy tick marks indicate December. Source: Haver Analytics.

Figure 7
The One-Year Market Interest Rate on Government Securities and
the Corresponding Real Rate of Interest

Percent

Market Interest Rate

Percent

Real Interest Rate

-2

-4

-4
46

Notes: The market rate of interest is monthly observations of the yield on U.S. government securities from "Short-Term Open Market Rates in New York
City" in Board of Governors (1976), Banking and Monetary Statistics, 1941-1970. Through July 1959 the series uses "9- to 12- month issues." Thereafter,
it uses "one-year Treasury bills." The series for the real rate of interest is the market rate minus predicted CPI inflation from the Livingston Survey. See
notes to Figure 4.4 (Hetzel 2008). Shaded areas demarcate recessions. Heavy tick marks indicate the November observation of the market interest rate.

Figure 8
Short-term Real Commercial Paper Rate

Percent

12
10
8
6
4
2
0
-2
-4

12
10
8
6
4
2
0
-2
-4
1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

12
10
8
6
4
2
0
-2
-4

12
10
8
6
4
2
0
-2
-4
1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

12
10
8
6
4
2
0
-2
-4

12
10
8
6
4
2
0
-2
-4
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002 2003

2004

2005

2006

2007

2008

2009

Notes: The real interest rate series is the commercial paper rate minus inflation forecasts made by the staff of the Board of Governors before FOMC meetings.
Before January 1980, the inflation forecasts are for headline inflation. Thereafter, they are for core inflation. For a description of the series, see "Appendix: Real
Rate of Interest." Shaded areas indicate NBER recessions. Heavy tick marks indicate December FOMC meeting.

Figure 9
The Output Gap and the Real Interest Rate
7

5
8
3
6
1
4

-1
-3

2
-5
0
-7
-9

-2
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Notes: The output gap is the logarithm of real final sales to domestic purchasers minus the logarithm of potential
output measured by the Congressional Budget Office. The real interest rate series is the commercial paper rate
minus core inflation forecasts made by the staff of the Board of Governors before FOMC meetings. For a
desription of the series, see"Appendix: Real Rate of Interest." Shaded areas indicate NBER recessions. Heavy tick

Figure 10
Deviation of Real PCE from Cycle Trend, Real Interest Rate, and Inflation: 1966-1982
16

Percent

Percent
Deviation of Real PCE
from Cycle Trend
Real Interest Rate

14
12

16
14
12

Inflation

-2

-4

-6

-8

-8
1966

1968

1970

1972

1974

1976

1978

1980

1982

Notes: Deviation of Real PCE from Cycle Trend is the difference between the actual values and trend lines shown in Figure 5. Inflation is twelve-month
percentage changes in the personal consumption expenditures deflator. The Real Interest Rate is the commercial paper rate minus inflation forecasts
made by the staff of the Board of Governors shown in Figure 8. Shaded areas indicate NBER recessions. Heavy tick marks indicate December. Source:
Inflation data from Haver Analytics.

Figure 11
Deviation of Real PCE from Cycle Trend, Real Interest Rate, and Inflation: 1983-2009

Percent

-2

-4

-4
Deviation of Real PCE from
Cycle Trend

-6

Real Interest Rate
Inflation

-8

-10

-10
1988
2002
1984
1986
1990
1992
1994
1996
1998
2000
2004
2006
2008
Notes: Deviation of Real PCE from Cycle Trend is the difference between the actual values and trend lines shown in Figure 6. Inflation is twelvemonth percentage changes in the personal consumption expenditures deflator. The Real Interest Rate is the commercial paper rate minus the inflation
forecasts made by the staff of the Board of Governors shown in Figure 8. Shaded areas indicate NBER recessions. Heavy tick marks indicate
December. Source: Inflation data from Haver Analytics.

Figure 12
Real Price of Oil

2009 Dollars
140

140

120

100

0
1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Notes: Monthly observations of the West Texas intermediate crude oil spot price per barrel deflated by the PCE price index.
Shaded areas are NBER recessions. Tick marks indicate December. Source: Haver Analytics.

Figure 13
Headline and Core PCE
5

12-month % change

Core PCE
4

4
Headline PCE

-1

-2

-2
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Notes: Monthly observations of 12-month percentage changes in the personal consumption expenditures deflator. Heavy tick marks indicate
December. Source: Haver Analytics.

Figure 14
Growth of Real Personal Consumption Expenditures and Real Personal Disposable Income
8

Percent

RPCE

-2

RPDI

-4

-4
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Notes: Real personal consumption expenditures (RPCE) and real personal disposable income (RPDI) are 12-month percentage changes. Upward and downward spikes in
December 2004 and December 2005 reflect microsoft dividend in December 2004. Upward spike in May 2008 reflects Bush tax cut. Upward and downward spikes in
December 2012 and December 2013 reflect shifting of capital gains income into 2012. Heavy tick marks indicate December. Source: Haver Analytics.

Figure 15
M2 Growth and the Opportunity Cost of Holding M2
12

Percent

12-month percentage change

3.0
2.5

10
2.0
8

1.5
1.0

6
0.5
4

0.0
-0.5
M2 (Left Axis)

-1.0
Opportunity Cost of Holding M2 (Right Axis)
0

-1.5
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Notes: Monthly observations of 12-month percentage changes in M2.The opportunity cost of holding M2 is the 3-month
Treasury bill rate minus the own rate of interest on M2. Heavy tick marks indicate December. Source: FRED and Haver
Analytics.

Percent

Figure 16
Real ECB MRO Interest Rate and Real Euribor Interest Rate

Percent

ECB Refinancing Rate
Euribor Rate

-1

-2

-2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Notes: Quarterly observations of real ECB MRO (main refinancing operations) and real one-year Euribor interest rates
are constructed by subtracting one-year ahead inflation forecasts from ECB Survey of Professional Forecasters mean
point estimates. Shaded areas mark recessions with cycle peaks 2008Q1 and 2011Q1. Heavy tick marks indicate fourth
quarter. Source: ECB and Haver Analytics.

Figure 17
Eurozone: Nominal GDP Growth and M1 Growth Lagged Four Quarters
16

Percent

Nominal GDP Growth

-4

M1 Growth
-8

-8
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Notes: Quarterly observations of four-quarter percentage changes. M1 is lagged 4 quarters. M1 adjusted tor a
reclassification in June 2005 that produced a one-time discontinuity. Heavy tick marks indicate fourth quarter Source:
Eurostat and Haver Analytics.

Figure 18
United Kingdom: Real Rate of Interest
Percent

Percent
6

Official Bank Rate
-2

-2
1-Year London Interbank Offered Rate

-4
-4
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Notes: Quarterly observations of the real rate of interest using as the nominal interest rate the official bank rate
set by the Bank of England and the 1-year London Interbank Offered Rate. The real rate is the nominal rate
minus forecasted inflation. The latter is from the Bank of England Survey of Professional Forecasters. It is
corrected for a discontinuity in 2004 due to the change from the RPIX to the CPI. Source: Bank of England and
Haver Analytics.

24
Figure 19
United Kingdom: Nominal GDP Growth and M1Growth Lagged Two Quarters
15

15
UK Nominal GDP
Break-adjusted M1

-5

-5
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Notes: Quarterly observation of four quarter percentage changes in UK Nominal GDP and Break-adjusted M1 lagged two
quarters. Heavy tick marks represent fourth quarters. Source: Bank of England and Haver Analytics.

Figure 20
Corporate Bond Yields Relative to 10-Yr Treasury Securities

Percent

6
Aaa- 10Y

5
Baa-10Y

0
1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Notes: Monthly observations of the difference in the Aaa corporate bond yield and the Baa corporate bond yield relative to the 10-year Treasury yield.. Shaded areas
indicate NBER recessions. Tick marks indicate December. Source: Haver Analytics.

Figure 21
Yield Spread: The 3-month CD Rate Minus the 3-month Treasury Bill Rate
5.0

Percent

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

0
1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Notes: Average rate on 3-month negotiable certificates of deposit (secondary market). Discontinued after June 2013. Shaded areas indicate
NBER recessions. Source: Federal Reserve Board, Selected Interest Rates H.15.

Figure 22
Single Most Important Problem: Percent Reporting Financial and Interest Rates
40

Percent

0
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

2014

Notes: Percent of small businesses reporting "financial and interest rates" in response to the question, "What is the single most important problem facing
your business today?" Survey conducted by the National Federation of Independent Businesses, Small Business Economic Trends. Shaded areas
indicate NBER recessions. Heavy tick marks indicate December. Source: Haver Analytics.

Figure 23
Growth in Real Consumption and in Real Houshold Debt
Percent

Percent

15
Real Household Debt

12.5

Real Consumption
10

7.5

2.5

-2.5
-5

-2.5
-5
56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13
Notes: Quarterly observations of four-quarter percentage changes. Real Consumption is real personal consumption
expenditures. Real Household Debt is household credit market liabilities deflated by the personal consumption expenditures
deflator. Shaded areas are NBER recessions. Heavy tick marks indicate fourth quarter. Source: Board of Governors Financial
Accounts of the United States and Haver Analytics.

Figure 24
Household Net Wealth and Home Equity Wealth as Percent of Income
Percent

Percent

700

600

500

400

300

200

Net Worth
Home Equity

100

0
56

Notes: Series are represented as a fraction of disposable personal income. Shaded areas are NBER recessions. Heavy tick marks indicate
fourth quarter. Source: Board of Governors Financial Accounts of the United States and Haver Analytics.

Figure 25
House Price Indices and the Growth Rate of Personal Consumption Expenditures
Percent

Level
2.4

2.2

2.0

1.8

1.6

1.4

FHFA (Right Axis)

1.2

-2

Case-Shiller (Right Axis)
PCE (Left Axis)
1.0

-4
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Notes: Quarterly observations of FHFA (Federal Housing Finance Agency) House Price Index and S&P/Case-Shiller Home Price Index normalized using 1997 as the base year. Personal
consumption expenditures (PCE) are 4-quarter percentage changes. Shaded areas indicate NBER recessions. Heavy tick marks indicate fourth quarter of year. Source: Haver Analytics.

Appendix: Real Rate of Interest
The short-term real interest rate is the difference between the commercial paper rate and Greenbook
inflation forecasts made by the staff of the Board of Governors before FOMC meetings. The
commercial paper rate is for prime nonfinancial paper placed through dealers (A1/P1). The dates for
the interest rates match the publication dates of the Greenbooks. Because observations correspond to
FOMC meetings, they occur irregularly within the year and starting in 1979 the frequency is less than
twelve times per year. The Board staff forecasts for “core” inflation become available only in
January 1980. From 1966 through 1970, the inflation forecasts are for the implicit GNP deflator.
From 1971 through March 1976, they are for the GNP fixed-weight index. Thereafter, until January
1980, the forecast series used is the gross business product fixed-weight index. From January 1980
until February 1986, the gross domestic business product fixed-weight index excluding food and
energy is used. Thereafter, until January 2000, the CPI excluding food and energy is used. From
January 2000 onward, the personal consumption expenditures chain-weighted index excluding food
and energy is used. For additional details, see Hetzel (2008b, Ch. 4, Appendix: Series on the Real
Interest Rate, Real Rate of Interest, Greenbook Forecasts).

Full text of Working Papers (Federal Reserve Bank of Richmond) : What is the Monetary Standard?, Working Paper 15-16

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