Tag: economist

“De-Globalization?”

The classic study of the “swirl of processes and events” that ended previous globalization episodes is the theme of Princeton Professor Harold James’ 2002 book, The End of Globalization: Lessons from the Great Depression.

“Globalization” is here. Signified by an increasingly close economic interconnection that has led to profound political and social change worldwide, the process seems irreversible. In this book, however, Harold James provides a sobering historical perspective, exploring the circumstances in which the globally integrated world of an earlier era broke down under the pressure of unexpected events.

James examines one of the great historical nightmares of the twentieth century: the collapse of globalism in the Great Depression. Analyzing this collapse in terms of three main components of global economics—capital flows, trade and international migration—James argues that it was not simply a consequence of the strains of World War I, but resulted from the interplay of resentments against all these elements of mobility, as well as from the policies and institutions designed to assuage the threats of globalism.

Could it happen again? There are significant parallels today: highly integrated systems are inherently vulnerable to collapse, and world financial markets are vulnerable and unstable.

While James does not foresee another Great Depression, his book provides a cautionary tale in which institutions meant to save the world from the consequences of globalization—think WTO and IMF, in our own time—ended by destroying both prosperity and peace.

Legitimate fears about “globalization reversal” have been well put by Zakaria:

Davos, Switzerland —

President Trump’s speech here at the World Economic Forum went over relatively well. That’s partly because Davos is a conclave of business executives, and they like Trump’s pro-business message. But mostly, the president’s reception was a testament to the fact that he and what he represents are no longer unusual or exceptional. Look around the world and you will see: Trump and Trumpism have become normalized.

Davos was once the place where countries clamored to demonstrate their commitment to opening up their economies and societies. After all, these forces were producing global growth and lifting hundreds of millions out of poverty. Every year, a different nation would become the star of the forum, usually with a celebrated finance minister who was seen as the architect of a boom. The United States was the most energetic promoter of these twin ideas of economic openness and political freedom.

Today, Davos feels very different. Despite the fact that, throughout the world, growth remains solid and countries are moving ahead, the tenor of the times has changed. Where globalization was once the main topic, today it is the populist backlash to it. Where once there was a firm conviction about the way of the future, today there is uncertainty and unease.

This is not simply atmospherics and rhetoric. Ruchir Sharma of Morgan Stanley Investment Management points out that since 2008, we have entered a phase of “deglobalization.” Global trade, which rose almost uninterruptedly since the 1970s, has stagnated, while capital flows have fallen. Net migration flows from poor countries to rich ones have also dropped. In 2018, net migration to the United States hit its lowest point in a decade.

The shift in approach can best be seen in the case of India. In 2018, Prime Minister Narendra Modi came to Davos to decry the fact that “many countries are becoming inward focused and globalization is shrinking.” Since then, his government has increased tariffs on hundreds of items and taken steps to shield India’s farmers, shopkeepers, digital companies and many others from the dangers of international competition. The Office of the U.S. Trade Representative recently called out India for having the highest tariffs of any major economy in the world.

Indian officials used to aggressively court foreign investment, which was much needed to spur growth. Last week, with India’s economy slowing badly, Jeff Bezos announced a $1 billion investment in the country. (Bezos owns The Post.) But the minister of commerce and industry scoffed at the move, saying Amazon wasn’t “doing a great favor to India” and besides was probably engaging in anti-competitive, “predatory” practices. Often, protectionist policies help favored local producers. Malaysian Prime Minister Mahathir Mohamad recently criticized some of Modi’s policies toward Muslims. The Indian government effectively cut off imports of Malaysian palm oil. In a familiar pattern, one of the chief beneficiaries was a local billionaire long associated with Modi.

The Economist notes that Europe, once one of the chief motors for openness in economics and politics, is also rediscovering state intervention to prop up domestic industries. And if you think the Internet is exempt from these tendencies, think again. The European Center for International Political Economy tracks the number of protectionist measures put in place to “localize” the digital economy in 64 countries. It has been surging for years, especially since 2008.

It’s important not to exaggerate the backlash to globalization.

As a 2019 report by DHL demonstrates, globalization is still strong and, by some measures, continues to expand. People still want to trade, travel and transact across the world. But in government policy, where economic logic once trumped politics, today it is often the reverse. Economist Nouriel Roubini argues that the cumulative result of all these measures — protecting local industries, subsidizing national champions, restricting immigration — is to sap growth. “It means slower growth, fewer jobs, less efficient economies,” he told me recently. We’ve seen it happen many times in the past, not least in India, which suffered decades of stagnation as a result of protectionist policies, and we will see the impact in years to come.

Nevertheless, today, nationalism and protectionism prevail.

This phase of deglobalization is being steered from the top. The world’s leading nations are, as always, the agenda-setters. The example of China, which has shielded some of its markets and still grown rapidly, has made a deep impression on much of the world. Probably deeper still is the example of the planet’s greatest champion of liberty and openness, the United States, which now has a president who calls for managed trade, more limited immigration and protectionist measures. At Davos, Trump invited every nation to follow his example. More and more are complying.

“The world is de-globalizing. Trump set the example.” The Washington Post, Fareed Zakaria

Students should sense that while history does not repeat itself, it sometimes rhymes and this is a major danger. It also might imply that coping with climate change will be all the harder because American-led unilateralism everywhere would mean world policy paralysis.

Economics-Watching: Texas Service Sector Activity Flat, Outlook Continues to Worsen

[from The Federal Reserve Bank of Dallas]

Growth in Texas service sector activity stalled in October, according to business executives responding to the Texas Service Sector Outlook Survey.

“Labor market indicators pointed to no growth in employment and a largely stable workweek,” said Jesus Cañas, Dallas Fed senior business economist. “Price pressures remained unchanged while wage growth eased slightly. Perceptions of broader business conditions continued to worsen in October, as pessimism notably increased.”

Key takeaways from the service sector survey:

  • The revenue index fell eight points to 0.7, with the near-zero reading suggesting little change in activity from September.
  • The employment index fell from 2.7 to 0.1, its lowest level in seven months.
  • The input prices index was flat at 37.3 and the selling prices index remained steady at 9.5.
  • The wages and benefits index fell two points to 17.0, approaching its average reading of 15.8.
  • The general business activity index dropped from -8.6 to -18.2, its lowest level since December of last year, while the company outlook index fell to -12.8, its lowest level in 16 months.

Texas Retail Sales Decline

“Retail sales declined again in October while retail labor market indicators reflected a contraction in employment and workweeks,” Cañas said. “Retail labor market indicators reflected flat employment and workweeks. Retailers’ perceptions of broader business conditions were mixed.”

Key takeaways from the retail survey:

  • The sales index fell from -4.4 to -18.1, marking its sixth consecutive month in negative territory.
  • The employment index fell 13 points to -12.4 while the hours worked index fell from 0.6 to -12.1.
  • The general business activity index dropped from -10.2 to -23.0.

The Dallas Fed conducts the survey monthly to obtain a timely assessment of activity in the state’s service sector, which represents almost 70 percent of the state’s economy and employs about 9.5 million workers.        

For this month’s survey, Texas business executives were asked supplemental questions on credit conditions. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together.

Read the special questions results.

Economics-Watching: “Doing Nothing” Is Still Doing a Lot

[from the Federal Reserve Bank of Philadelphia, speech by Patrick T. Harker President and Chief Executive Officer at the National Association of Corporate Directors Webinar, Philadelphia, PA (Virtual)]

Good afternoon, everyone.

I appreciate that you’re all giving up part of the end of your workday for us to be together, if only virtually.

My thanks to my good friend, Rick Mroz, for that welcome and introduction.

I do believe we’re going to have a productive session. But just so you all know, as much as I enjoy speaking and providing my outlook, I enjoy a good conversation even more.

So, first, let’s take a few minutes so I can give you my perspective on where we are headed, and then I will be more than happy to take questions and hear what’s on your minds.

But before we get into any of that, I must begin with the standard Fed disclaimer: The views I express today are my own and do not necessarily reflect those of anyone else on the Federal Open Market Committee (FOMC) or in the Federal Reserve System.

Put simply, this is one of those times where the operative words are, “Pat said,” not “the Fed said.”

Now, to begin, I’m going to first address the two topics that I get asked about most often: interest rates and inflation. And I would guess they are the topics front and center in many of your minds as well.

After the FOMC’s last policy rate hike in July, I went on record with my view that, if economic and financial conditions evolved roughly as I expected they would, we could hold rates where they are. And I am pleased that, so far, economic and financial conditions are evolving as I expected, if not perhaps even a tad better.

Let’s look at the current dynamics. There is a steady, if slow, disinflation under way. Labor markets are coming into better balance. And, all the while, economic activity has remained resilient.

Given this, I remain today where I found myself after July’s meeting: Absent a stark turnabout in the data and in what I hear from contacts, I believe that we are at the point where we can hold rates where they are.

In barely more than a year, we increased the policy rate by more than 5 percentage points and to its highest level in more than two decades — 11 rate hikes in a span of 12 meetings prior to September. We not only did a lot, but we did it very fast.

We also turned around our balance sheet policy — and we will continue to tighten financial conditions by shrinking the balance sheet.

The workings of the economy cannot be rushed, and it will take some time for the full impact of the higher rates to be felt. In fact, I have heard a plea from countless contacts, asking to give them some time to absorb the work we have already done.

I agree with them. I am sure policy rates are restrictive, and, as long they remain so, we will steadily press down on inflation and bring markets into a better balance.

Holding rates steady will let monetary policy do its work. By doing nothing, we are still doing something. And I would argue we are doing quite a lot.

Headline PCE inflation remained elevated in August at 3.5 percent year over year, but it is down 3 percentage points from this time last year. About half of that drop is due to the volatile components of energy and food that, while basic necessities, they are typically excluded by economists in the so-called core inflation rate to give a more accurate assessment of the pace of disinflation and its likely path forward.

Well, core PCE inflation has also shown clear signs of progress, and the August monthly reading was its smallest month-over-month increase since 2020.

So, yes, a steady disinflation is under way, and I expect it to continue. My projection is that inflation will drop below 3 percent in 2024 and level out at our 2 percent target thereafter.

However, there can be challenges in assessing the trends in disinflation. For example, September’s CPI report came out modestly on the upside, driven by energy and housing.

Let me be clear about two things. First, we will not tolerate a reacceleration in prices. But second, I do not want to overreact to the normal month-to-month variability of prices. And for all the fancy techniques, the best way to separate a signal from noise remains to average data over several months. Of course, to do so, you need several months of data to start with, which, in turn, demands that, yes, we remain data-dependent but patient and cautious with the data.

Turning to the jobs picture, I do anticipate national unemployment to end the year at about 4 percent — just slightly above where we are now — and to increase slowly over the next year to peak at around 4.5 percent before heading back toward 4 percent in 2025. That is a rate in line with what economists call the natural rate of unemployment, or the theoretical level in which labor market conditions support stable inflation at 2 percent.

Now, that said, as you know, there are many factors that play into the calculation of the unemployment rate. For instance, we’ve seen recent months where, even as the economy added more jobs, the unemployment rate increased because more workers moved off the sidelines and back into the labor force. There are many other dynamics at play, too, such as technological changes or public policy issues, like child care or immigration, which directly impact employment.

And beyond the hard data, I also have to balance the soft data. For example, in my discussions with employers throughout the Third District, I hear that given how hard they’ve worked to find the workers they currently have, they are doing all they can to hold onto them.

So, to sum up the labor picture, let me say, simply, I do not expect mass layoffs.

I do expect GDP gains to continue through the end of 2023, before pulling back slightly in 2024. But even as I foresee the rate of GDP growth moderating, I do not see it contracting. And, again, to put it simply, I do not anticipate a recession.

Look, this economy has been nothing if not unpredictable. It has proven itself unwilling to stick to traditional modeling and seems determined to not only bend some rules in one place, but to make up its own in another. However, as frustratingly unpredictable as it has been, it continues to move along.

And this has led me to the following thought: What has fundamentally changed in the economy from, say, 2018 or 2019? In 2018, inflation averaged 2 percent almost to the decimal point and was actually below target in 2019. Unemployment averaged below 4 percent for both years and was as low as 3.5 percent — both nationwide and in our respective states — while policy rates peaked below 2.5 percent.

Now, I’m not saying we’re going to be able to exactly replicate the prepandemic economy, but it is hard to find fundamental differences. Surely, I cannot and will not minimize the immense impacts of the pandemic on our lives and our families, nor the fact that for so many, the new normal still does not feel normal. From the cold lens of economics, I do not see underlying fundamental changes. I could also be wrong, and, trust me, that would not be the first time this economy has made me rethink some of the classic models. We just won’t know for sure until we have more data to look at over time.

And then, of course, there are the economic uncertainties — both national and global — against which we also must contend. The ongoing auto worker strike, among other labor actions. The restart of student loan payments. The potential of a government shutdown. Fast-changing events in response to the tragic attacks against Israel. Russia’s ongoing war against Ukraine. Each and every one deserves a close watch.

These are the broad economic signals we are picking up at the Philadelphia Fed, but I would note that the regional ones we follow are also pointing us forward.

First, while in the Philadelphia Fed’s most recent business outlook surveys, which survey manufacturing and nonmanufacturing firms in the Third District, month-over-month activity declined, the six-month outlooks for each remain optimistic for growth.

And we also publish a monthly summary metric of economic activity, the State Coincident Indexes. In New Jersey, the index is up slightly year over year through August, which shows generally positive conditions. However, the three-month number from June through August was down, and while both payroll employment and average hours worked in manufacturing increased during that time, so did the unemployment rate — though a good part of that increase can be explained as more residents moved back into the labor force.

And for those of you joining us from the western side of the Delaware River, Pennsylvania’s coincident index is up more than 4 percent year over year through August and 1.7 percent since June. Payroll employment was up, and the unemployment rate was down; however, the number of average hours worked in manufacturing decreased.

There are also promising signs in both states in terms of business formation. The number of applications, specifically, for high-propensity businesses — those expected to turn into firms with payroll — are remaining elevated compared with pre-pandemic levels. Again, a promising sign.

So, it is against this full backdrop that I have concluded that now is the time at which the policy rate can remain steady. But I can hear you ask: “How long will rates need to stay high.” Well, I simply cannot say at this moment. My forecasts are based on what we know as of late 2023. As time goes by, as adjustments are completed, and as we have more data and insights on the underlying trends, I may need to adjust my forecasts, and with them my time frames.

I can tell you three things about my views on future policy. First, I expect rates will need to stay high for a while.

Second, the data and what I hear from contacts and outreach will signal to me when the time comes to adjust policy either way. I really do not expect it, but if inflation were to rebound, I know I would not hesitate to support further rate increases as our objective to return inflation to target is, simply, not negotiable.

Third, I believe that a resolute, but patient, monetary policy stance will allow us to achieve the soft landing that we all wish for our economy.

Before I conclude and turn things over to Rick to kick off our Q&A, I do want to spend a moment on a topic that he and I recently discussed, and it’s something about which I know there is generally great interest: fintech. In fact, I understand there is discussion about NACD hosting a conference on fintech.

Well, last month, we at the Philadelphia Fed hosted our Seventh Annual Fintech Conference, which brought business and thought leaders together at the Bank for two days of real in-depth discussions. And I am extraordinarily proud of the fact that the Philadelphia Fed’s conference has emerged as one of the premier conferences on fintech, anywhere. Not that it’s a competition.

I had the pleasure of opening this year’s conference, which always puts a focus on shifts in the fintech landscape. Much of this year’s conference centered around developments in digital currencies and crypto — and, believe me, some of the discussions were a little, shall we say, “spirited.” However, my overarching point to attendees was the following: Regardless of one’s views, whether in favor of or against such currencies, our reality requires us to move from thinking in terms of “what if” to thinking about “what next.”

In many ways, we’re beyond the stage of thinking about crypto and digital currency and into the stage of having them as reality — just as AI has moved from being the stuff of science fiction to the stuff of everyday life. What is needed now is critical thinking about what is next. And we at the Federal Reserve, both here in Philadelphia and System-wide, are focused on being part of this discussion.

We are also focused on providing not just thought leadership but actionable leadership. For example, the Fed rolled out our new FedNow instant payment service platform in July. With FedNow, we will have a more nimble and responsive banking system.

To be sure, FedNow is not the first instant payment system — other systems, whether operated by individual banks or through third parties, have been operational for some time. But by allowing banks to interact with each other quickly and efficiently to ensure one customer’s payment becomes another’s deposit, we are fulfilling our role in providing a fair and equitable payment system.

Another area where the Fed is assuming a mantle of leadership is in quantum computing, or QC, which has the potential to revolutionize security and problem-solving methodologies throughout the banking and financial services industry. But that upside also comes with a real downside risk, should other not-so-friendly actors co-opt QC for their own purposes.

Right now, individual institutions and other central banks globally are expanding their own research in QC. But just as these institutions look to the Fed for economic leadership, so, too, are they looking to us for technological leadership. So, I am especially proud that this System-wide effort is being led from right here at the Philadelphia Fed.

I could go on and talk about fintech for much longer. After all, I’m actually an engineer more than I am an economist. But I know that Rick is interested in starting our conversation, and I am sure that many of you are ready to participate.

But one last thought on fintech — my answers today aren’t going to be generated by ChatGPT.

On that note, Rick, thanks for allowing me the time to set up our discussion, and let’s start with the Q&A.

[archived PDF of the above speech]

Education and Circular Causation: Everything Causes Everything Else

The student will have seen in these educational essays the notion of “Husserl’s rhomboid”:

The great philosopher, Edmund Husserl, who died in 1938, would bring a matchbox to class and show his students they see parts and some surface area of the matchbox (a kind of rhomboid, hence the name “Husserl’s rhomboid”) but never all of it at the same time. Students can walk around the matchbox and see facets. They can twirl the matchbox but whatever they do, the students cannot “espy” or glimpse all of it except in their imaginations, once they have been exposed to all of it, side by side, facet by facet.

Gunnar Myrdal, the Swedish economist who won the Nobel Prize in 1974, has something a bit analogous when he speaks of “circular cumulative causation”:

Circular cumulative causation is a theory developed by Swedish economist Gunnar Myrdal in 1956. It is a multi-causal approach where the core variables and their linkages are delineated. The idea behind it is that a change in one form of an institution will lead to successive changes in other institutions. These changes are circular in that they continue in a cycle, many times in a negative way, in which there is no end, and cumulative in that they persist in each round. The change does not occur all at once, which would lead to chaos, rather the changes occur gradually.

Gunnar Myrdal developed the concept from Knut Wicksell and developed it with Nicholas Kaldor when they worked together at the United Nations Economic Commission for Europe.

In the characteristics relevant to an economy’s development process, Myrdal mentioned the availability of natural resources, the historical traditions of production activity, national cohesion, religions and ideologies, and economic, social and political leadership.

He writes:

“The notion of stable equilibrium is normally a false analogy to choose when constructing a theory to explain the changes in a social system.

What is wrong with the stable equilibrium assumption as applied to social reality is the very idea that a social process follows a direction—though it might move towards it in a circuitous way—towards a position which in some sense or other can be described as a state of equilibrium between forces. Behind this idea is another and still more basic assumption, namely that a change will regularly call forth a reaction in the system in the form of changes which on the whole go in the opposite direction to the first change. The idea I want to expound in this book is that, on the contrary, in the normal case there is no such a tendency towards automatic self-stabilisation in the social system. The system is by itself not moving towards any sort of balance between forces, but is constantly on the move away from such a situation. In the normal case a change does not call forth countervailing changes but, instead, supporting changes, which move the system in the same direction as the first change but much further. Because of such circular causation as a social process tends to become cumulative and often gather speed at an accelerating rate…”

(Gunnar Myrdal, Economic Theory and Underdeveloped Regions, Gerald Duckworth, 1957, pp. 12–13)

Myrdal developed further the circular cumulative causation concept and stated that it makes different assumptions from that of stable equilibrium on what can be considered the most important forces guiding the evolution of social processes. These forces characterize the dynamics of these processes in two diverse ways.

These essays that you are reading here are examples encouraging students to put causes in a kind of circle: history exists because economics exists because psychology exists because society exists because history exists. Everything is causing everything else. There isn’t a simple “linear parade.”

By way of contrast, in a person’s private life, he/she went to the dentist before buying the batteries and after having lunch. There’s a timeline of events.

In history, there are such linear timelines also: John Kennedy was assassinated before Donald Trump became president. You had breakfast before dinner. You slept before you got up in the morning.

However, processes (industrialism, migration, urbanization, inflation, etc.) are not analyzable as events like meals and one-time occurrences but are more like getting old or learning a language.

Multi-causal interpretations and circular causes get the student out of simple, “this happened and that happened” in favor of “this and that caused each other, going both ways and interacting with other pressures too.” Everything is causing and altering everything else in all directions.

EconoSpeak: Tariffs and Inflation

[from EconoSpeak, posted by Kevin Quinn]

Jason Furman and Janet Yellen have both suggested that cutting Trump’s tariffs would  be anti-inflationary. But most economists agree that the incidence of the tariffs is for the most part on U.S. consumers, not foreign suppliers (pace the treasonous and ignorant former president, who crowed about all the revenues we were raising from China). So how is a tax cut anti-inflationary?  There is a supply-side effect, which is all to the good, but the demand-side effects may well wash that out. So get rid of the tariffs but reverse the Trump tax cuts, which Manchin favors, through reconciliation. Taxes remain the same, so we’ve neutralized the effects on demand; and we still get the good supply side effects of a more rational global division of labor.

Education and the Question of Intuition

An intuition pump is a thought experiment structured to allow the thinker to use his or her intuition to develop an answer to a problem. The phrase was popularized in the 1991 book Consciousness Explained by Tufts philosophy and neuroscience professor, Daniel Dennett.

We argue in this education-completing book, that our intuitions are puzzling in a way that “intuition pump” talk does not cope with at all.

Let’s go immediately to the example of simple versus compound interest in basic finance.

You borrow $100.00 for a year at an annual interest of 100%, without compounding and hence simple. A year passes and you owe the lender the initial $100 plus one hundred percent of this amount (i.e., another hundred). In a year, you owe $200.00, and every year thereafter, if the lender is willing to extend the loan, you owe another hundred to “rent” the initial hundred.

This is written as A+iA, where A is the initial amount (i.e., $100.00) and i is the interest. This can be re-written as A(1+i)n where n is the number of years. Thus, if n=1, you owe: A(1+i), which is 100×2 (i.e., the $200 we just saw). There’s nothing tricky in this.

You then are introduced to compound interest (i.e., where the interest accumulates interest). You can see where compounding by 6 months (semi-annually, or half a year) or 12 months involves dividing the n (the exponent over 1+i) by 12 months, two half-years or 365 days. You could routinely go to days and hours and minutes and seconds and nanoseconds and you could calculate interest payments compounding for each case.

But here is where your intuition falters and fails: suppose you compound continuously?

You get to the number e as growth factor where e=2.71823

Simple algebra does show that at 100% interest, $100 of a loan becomes $100 multiplied by e1 (hundred percent=1) or just e (i.e., you owe $100e).

This gives you $271.82.

So what has happened?

At one hundred percent simple interest you owe $200.00 to the lender. Continuous compounding means you owe $271.82. Instead of owing $100 in interest, you owe $171.82. Your interest bill has gone up by $71.82 or about 72 percent.

Does that seem intuitive? Probably not.

How could one ever apply an “intuition pump” to this arithmetic? We get to the 72% increase in interest by using e which has nothing very intuitive about it. Thus it’s not clear that “intuition pumps” will work here.

You use compound interest arithmetic to get a number which you would never have been able to estimate based on standard intuition since like the 22/7 or 3.14 for π (pi), there’s nothing to “recommend” 2.71823 in and of itself. This means that the link between computational arithmetic understanding and your “gut” or “sixth sense” is feeble at best.

By exploring this way of thinking you could deepen your “meta-intelligence” (i.e., perspective-enhancement). The British economist Pigou (Keynes’s teacher) says that people have a “defective telescopic facility” (i.e., have a poor or even erroneous sense of time-distance).

How one might strengthen one’s sense of time-distance or “far horizons” is not clear.

Looking Backwards and Forwards at the Same Time

Janus and Bi-Directional Smarts

The Roman god Janus looks backwards and forwards at the same time and learning to be somewhat Janus-like is very conducive in the metaintelligence (i.e., larger overview) quest.

There’s a useful French phrase, “reculer pour mieux sauter” which means like a high jumper, you have to take steps backwards to jump higher. In other words, learn to look bi-directionally at the world.

First look back, then forward.

Here’s a concrete example:

W. Arthur Lewis, the “father” of development economics, originally from the Caribbean, taught at Princeton. He won the Nobel in 1979 and wrote various classics such as Growth and Fluctuations, 1870-1913 (1978).

Lewis writes:

In this book we shall not be attempting to give formal or complete explanations of why fluctuations occurred. Like the captain of a ship navigating in stormy seas, we shall need to identify the waves, without needing an exhaustive theory of what causes waves.

When analyzing these fluctuations economists have identified four different cycles, distinguished by length of periodicity, each of which is named after the economist who first wrote about it:

the Kitchin (about three years)
the Juglar (about nine years)
the Kuznets (about twenty years)
the Kondratiev (about fifty years)

(W. Arthur Lewis, Growth and Fluctuations, 1870-1913, 1978, page 19)

Lewis gives us a quick overview of how we got to the era covered by his book:

“The essence of the industrial and agricultural revolutions in the first three quarters of the nineteenth century was in new ways of doing old things—of making iron, textiles and clothes, of growing cereals, and of transporting goods and services. In the last quarter of the nineteenth century the revolution added a new twist—that of making new commodities: telephones, gramophones, typewriters, cameras, automobiles and so on, a seemingly endless process whose twentieth century additions include aeroplanes, radios, refrigerators, washing machines and pleasure boats.”

(Growth and Fluctuations, 1870-1913, page 29)

Professor Norman Stone in his masterpiece on WWI calls this late nineteenth century explosion of material change and inventions the greatest fast quantum leap in world history in transforming the world.

If one reads these lines with a “Janus mind” we wonder, looking forward from the Lewis book and its era:

  1. How does his catchy metaphor of waves in the ocean relate to fluctuations and cycles? When Ben Bernanke (Fed Chair) describes recent decades as “The Great Moderation” does he mean to imply that Lewis-type waves disappeared or got much smaller?
  2. Can computers and mobile phones really match cars and planes in profundity of impact? Or is it only the tremendous spread of mobile or smartphones in the Global South that can?

In fact, the recent economic history classic, Robert Gordon’s The Rise and Fall of American Growth argues against the assumption of endless technical change as a growth accelerator or endless frontier:

In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, home appliances, motor vehicles, air travel, air conditioning, and television transformed households and workplaces. With medical advances, life expectancy between 1870 and 1970 grew from 45 to 72 years. Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth provides an in-depth account of this momentous era. But has that era of unprecedented growth come to an end?

Gordon challenges the view that economic growth can or will continue unabated, and he demonstrates that the life-altering scale of innovations between 1870 and 1970 can’t be repeated. He contends that the nation’s productivity growth, which has already slowed to a crawl, will be further held back by the vexing headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government. Gordon warns that the younger generation may be the first in American history that fails to exceed their parents’ standard of living, and that rather than depend on the great advances of the past, we must find new solutions to overcome the challenges facing us.

A critical voice in the debates over economic stagnation, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.

  1. Why does one not read of the four cycles mentioned by Lewis (i.e., Kitchin) and the rest listed above in today’s business and financial press? Has there been some great discontinuity?

If you apply a “Janus mind” to the past (described by Lewis) and our sense of the future (described by techno-pessimists like Gordon) you get a more thoughtful sense of “the human prospect.”

Federal Reserve Review of Monetary Policy Strategy, Tools, and Communications: Some Preliminary Views

(Speech by Governor Lael Brainard, at the Presentation of the 2019 William F. Butler Award New York Association for Business Economics, New York, New York)

It is a pleasure to be here with you. It is an honor to join the 45 outstanding economic researchers and practitioners who are past recipients of the William F. Butler Award. I want to express my deep appreciation to the New York Association for Business Economics (NYABE) and NYABE President Julia Coronado.

I will offer my preliminary views on the Federal Reserve’s review of its monetary policy strategy, tools, and communications after first touching briefly on the economic outlook. These remarks represent my own views. The framework review is ongoing and will extend into 2020, and no conclusions have been reached at this time.1

Outlook and Policy

There are good reasons to expect the economy to grow at a pace modestly above potential over the next year or so, supported by strong consumers and a healthy job market, despite persistent uncertainty about trade conflict and disappointing foreign growth. Recent data provide some reassurance that consumer spending continues to expand at a healthy pace despite some slowing in retail sales. Consumer sentiment remains solid, and the employment picture is positive. Housing seems to have turned a corner and is poised for growth following several weak quarters.

Business investment remains downbeat, restrained by weak growth abroad and trade conflict. But there is little sign so far that the softness in trade, manufacturing, and business investment is affecting consumer spending, and the effect on services has been limited.

Employment remains strong. The employment-to-population ratio for prime-age adults has moved up to its pre-recession peak, and the three-month moving average of the unemployment rate is near a 50-year low.2 Monthly job gains remain above the pace needed to absorb new entrants into the labor force despite some slowing since last year. And initial claims for unemployment insurance—a useful real-time indicator historically—remain very low despite some modest increases.

Data on inflation have come in about as I expected, on balance, in recent months. Inflation remains below the Federal Reserve’s 2 percent symmetric objective, which has been true for most of the past seven years. The price index for core personal consumption expenditures (PCE), which excludes food and energy prices and is a better indicator of future inflation than overall PCE prices, increased 1.7 percent over the 12 months through September.

Foreign growth remains subdued. While there are signs that the decline in euro-area manufacturing is stabilizing, the latest indicators on economic activity in China remain sluggish, and the news in Japan and in many emerging markets has been disappointing. Overall, it appears third-quarter foreign growth was weak, and the latest indicators point to little improvement in the fourth quarter.

More broadly, the balance of risks remains to the downside, although there has been some improvement in risk sentiment in recent weeks. The risk of a disorderly Brexit in the near future has declined significantly, and there is some hope that a U.S.–China trade truce could avert additional tariffs. While risks remain, financial market indicators suggest market participants see a diminution in such risks, and probabilities of recessions from models using market data have declined.

The baseline is for continued moderate expansion, a strong labor market, and inflation moving gradually to our symmetric 2 percent objective. The Federal Open Market Committee (FOMC) has taken significant action to provide insurance against the risks associated with trade conflict and weak foreign growth against a backdrop of muted inflation. Since July, the Committee has lowered the target range for the federal funds rate by ¾ percentage point, to the current range of 1½ to 1¾ percent. It will take some time for the full effect of this accommodation to work its way through economic activity, the labor market, and inflation. I will be watching the data carefully for signs of a material change to the outlook that could prompt me to reassess the appropriate path of policy.

Review

The Federal Reserve is conducting a review of our monetary policy strategy, tools, and communications to make sure we are well positioned to advance our statutory goals of maximum employment and price stability.3 Three key features of today’s new normal call for a reassessment of our monetary policy strategy: the neutral rate is very low here and abroad, trend inflation is running below target, and the sensitivity of price inflation to resource utilization is very low.4

First, trend inflation is below target.5 Underlying trend inflation appears to be running a few tenths below the Committee’s symmetric 2 percent objective, according to various statistical filters. This raises the risk that households and businesses could come to expect inflation to run persistently below our target and change their behavior in a way that reinforces that expectation. Indeed, with inflation having fallen short of 2 percent for most of the past seven years, inflation expectations may have declined, as suggested by some survey-based measures of long-run inflation expectations and by market-based measures of inflation compensation.

Second, the sensitivity of price inflation to resource utilization is very low. This is what economists mean when they say that the Phillips curve is flat. A flat Phillips curve has the important advantage of allowing employment to continue expanding for longer without generating inflationary pressures, thereby providing greater opportunities to more people. But it also makes it harder to achieve our 2 percent inflation objective on a sustained basis when inflation expectations have drifted below 2 percent.

Third, the long-run neutral rate of interest is very low, which means that we are likely to see more frequent and prolonged episodes when the federal funds rate is stuck at its effective lower bound (ELB).6 The neutral rate is the level of the federal funds rate that would keep the economy at full employment and 2 percent inflation if no tailwinds or headwinds were buffeting the economy. A variety of forces have likely contributed to a decline in the neutral rate, including demographic trends in many large economies, some slowing in the rate of productivity growth, and increases in the demand for safe assets. When looking at the Federal Reserve’s Summary of Economic Projections (SEP), it is striking that the Committee’s median projection of the longer-run federal funds rate has moved down from 4¼ percent to 2½ percent over the past seven years.7 A similar decline can be seen among private forecasts.8 This decline means the conventional policy buffer is likely to be only about half of the 4½ to 5 percentage points by which the FOMC has typically cut the federal funds rate to counter recessionary pressures over the past five decades.

This large loss of policy space will tend to increase the frequency or length of periods when the policy rate is pinned at the ELB, unemployment is elevated, and inflation is below target.9 In turn, the experience of frequent or extended periods of low inflation at the ELB risks eroding inflation expectations and further compressing the conventional policy space. The risk is a downward spiral where conventional policy space gets compressed even further, the ELB binds even more frequently, and it becomes increasingly difficult to move inflation expectations and inflation back up to target. While consumers and businesses might see very low inflation as having benefits at the individual level, at the aggregate level, inflation that is too low can make it very challenging for monetary policy to cut the short-term nominal interest rate sufficiently to cushion the economy effectively.10

The experience of Japan and of the euro area more recently suggests that this risk is real. Indeed, the fact that Japan and the euro area are struggling with this challenging triad further complicates our task, because there are important potential spillovers from monetary policy in other major economies to our own economy through exchange rate and yield curve channels.11

In light of the likelihood of more frequent episodes at the ELB, our monetary policy review should advance two goals. First, monetary policy should achieve average inflation outcomes of 2 percent over time to re-anchor inflation expectations at our target. Second, we need to expand policy space to buffer the economy from adverse developments at the ELB.

Achieving the Inflation Target

The apparent slippage in trend inflation below our target calls for some adjustments to our monetary policy strategy and communications. In this context and as part of our review, my colleagues and I have been discussing how to better anchor inflation expectations firmly at our objective. In particular, it may be helpful to specify that policy aims to achieve inflation outcomes that average 2 percent over time or over the cycle. Given the persistent shortfall of inflation from its target over recent years, this would imply supporting inflation a bit above 2 percent for some time to compensate for the period of underperformance.

One class of strategies that has been proposed to address this issue are formal “makeup” rules that seek to compensate for past inflation deviations from target. For instance, under price-level targeting, policy seeks to stabilize the price level around a constant growth path that is consistent with the inflation objective.12 Under average inflation targeting, policy seeks to return the average of inflation to the target over some specified period.13

To be successful, formal makeup strategies require that financial market participants, households, and businesses understand in advance and believe, to some degree, that policy will compensate for past misses. I suspect policymakers would find communications to be quite challenging with rigid forms of makeup strategies, because of what have been called time-inconsistency problems. For example, if inflation has been running well below—or above—target for a sustained period, when the time arrives to maintain inflation commensurately above—or below—2 percent for the same amount of time, economic conditions will typically be inconsistent with implementing the promised action. Analysis also suggests it could take many years with a formal average inflation targeting framework to return inflation to target following an ELB episode, although this depends on difficult-to-assess modeling assumptions and the particulars of the strategy.14

Thus, while formal average inflation targeting rules have some attractive properties in theory, they could be challenging to implement in practice. I prefer a more flexible approach that would anchor inflation expectations at 2 percent by achieving inflation outcomes that average 2 percent over time or over the cycle. For instance, following five years when the public has observed inflation outcomes in the range of 1½ to 2 percent, to avoid a decline in expectations, the Committee would target inflation outcomes in a range of, say, 2 to 2½ percent for the subsequent five years to achieve inflation outcomes of 2 percent on average overall. Flexible inflation averaging could bring some of the benefits of a formal average inflation targeting rule, but it would be simpler to communicate. By committing to achieve inflation outcomes that average 2 percent over time, the Committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation.15

Policy at the ELB

Second, the Committee is examining what monetary policy tools are likely to be effective in providing accommodation when the federal funds rate is at the ELB.16 In my view, the review should make clear that the Committee will actively employ its full toolkit so that the ELB is not an impediment to providing accommodation in the face of significant economic disruptions.

The importance and challenge of providing accommodation when the policy rate reaches the ELB should not be understated. In my own experience on the international response to the financial crisis, I was struck that the ELB proved to be a severe impediment to the provision of policy accommodation initially. Once conventional policy reached the ELB, the long delays necessitated for policymakers in nearly every jurisdiction to develop consensus and take action on unconventional policy sapped confidence, tightened financial conditions, and weakened recovery. Economic conditions in the euro area and elsewhere suffered for longer than necessary in part because of the lengthy process of building agreement to act decisively with a broader set of tools.

Despite delays and uncertainties, the balance of evidence suggests forward guidance and balance sheet policies were effective in easing financial conditions and providing accommodation following the global financial crisis.17 Accordingly, these tools should remain part of the Committee’s toolkit. However, the quantitative asset purchase policies that were used following the crisis proved to be lumpy both to initiate at the ELB and to calibrate over the course of the recovery. This lumpiness tends to create discontinuities in the provision of accommodation that can be costly. To the extent that the public is uncertain about the conditions that might trigger asset purchases and how long the purchases would be sustained, it undercuts the efficacy of the policy. Similarly, significant frictions associated with the normalization process can arise as the end of the asset purchase program approaches.

For these reasons, I have been interested in exploring approaches that expand the space for targeting interest rates in a more continuous fashion as an extension of our conventional policy space and in a way that reinforces forward guidance on the policy rate.18 In particular, there may be advantages to an approach that caps interest rates on Treasury securities at the short-to-medium range of the maturity spectrum—yield curve caps—in tandem with forward guidance that conditions liftoff from the ELB on employment and inflation outcomes.

To be specific, once the policy rate declines to the ELB, this approach would smoothly move to capping interest rates on the short-to-medium segment of the yield curve. The yield curve ceilings would transmit additional accommodation through the longer rates that are relevant for households and businesses in a manner that is more continuous than quantitative asset purchases. Moreover, if the horizon on the interest rate caps is set so as to reinforce forward guidance on the policy rate, doing so would augment the credibility of the yield curve caps and thereby diminish concerns about an open-ended balance sheet commitment. In addition, once the targeted outcome is achieved, and the caps expire, any securities that were acquired under the program would roll off organically, unwinding the policy smoothly and predictably. This is important, as it could potentially avoid some of the tantrum dynamics that have led to premature steepening at the long end of the yield curve in several jurisdictions.

Forward guidance on the policy rate will also be important in providing accommodation at the ELB. As we saw in the United States at the end of 2015 and again toward the second half of 2016, there tends to be strong pressure to “normalize” or lift off from the ELB preemptively based on historical relationships between inflation and employment. A better alternative would have been to delay liftoff until we had achieved our targets. Indeed, recent research suggests that forward guidance that commits to delay the liftoff from the ELB until full employment and 2 percent inflation have been achieved on a sustained basis—say over the course of a year—could improve performance on our dual-mandate goals.19

To reinforce this commitment, the forward guidance on the policy rate could be implemented in tandem with yield curve caps. For example, as the federal funds rate approaches the ELB, the Committee could commit to refrain from lifting off the ELB until full employment and 2 percent inflation are sustained for a year. Based on its assessment of how long this is likely take, the Committee would then commit to capping rates out the yield curve for a period consistent with the expected horizon of the outcome-based forward guidance. If the outlook shifts materially, the Committee could reassess how long it will take to get inflation back to 2 percent and adjust policy accordingly. One benefit of this approach is that the forward guidance and the yield curve ceilings would reinforce each other.

The combination of a commitment to condition liftoff on the sustained achievement of our employment and inflation objectives with yield curve caps targeted at the same horizon has the potential to work well in many circumstances. For very severe recessions, such as the financial crisis, such an approach could be augmented with purchases of 10-year Treasury securities to provide further accommodation at the long end of the yield curve. Presumably, the requisite scale of such purchases—when combined with medium-term yield curve ceilings and forward guidance on the policy rate—would be relatively smaller than if the longer-term asset purchases were used alone.

Monetary Policy and Financial Stability

Before closing, it is important to recall another important lesson of the financial crisis: The stability of the financial system is important to the achievement of the statutory goals of full employment and 2 percent inflation. In that regard, the changes in the macroeconomic environment that underlie our monetary policy review may have some implications for financial stability. Historically, when the Phillips curve was steeper, inflation tended to rise as the economy heated up, which prompted the Federal Reserve to raise interest rates. In turn, the interest rate increases would have the effect of tightening financial conditions more broadly. With a flat Phillips curve, inflation does not rise as much as resource utilization tightens, and interest rates are less likely to rise to restrictive levels. The resulting lower-for-longer interest rates, along with sustained high rates of resource utilization, are conducive to increasing risk appetite, which could prompt reach-for-yield behavior and incentives to take on additional debt, leading to financial imbalances as an expansion extends.

To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial stability risks to become more tightly linked to the business cycle, it would be preferable to use tools other than tightening monetary policy to temper the financial cycle. In particular, active use of macroprudential tools such as the countercyclical buffer is vital to enable monetary policy to stay focused on achieving maximum employment and average inflation of 2 percent on a sustained basis.

Conclusion

The Federal Reserve’s commitment to adapt our monetary policy strategy to changing circumstances has enabled us to support the U.S. economy throughout the expansion, which is now in its 11th year. In light of the decline in the neutral rate, low trend inflation, and low sensitivity of inflation to slack as well as the consequent greater frequency of the policy rate being at the effective lower bound, this is an important time to review our monetary policy strategy, tools, and communications in order to improve the achievement of our statutory goals. I have offered some preliminary thoughts on how we could bolster inflation expectations by achieving inflation outcomes of 2 percent on average over time and, when policy is constrained by the ELB, how we could combine forward guidance on the policy rate with caps on the short-to-medium segment of the yield curve to buffer the economy against adverse developments.

  1. I am grateful to Ivan Vidangos of the Federal Reserve Board for assistance in preparing this text. These remarks represent my own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market Committee. (return to text)
  2. Claudia Sahm shows that a ½ percentage point increase in the three-month moving average of the unemployment rate relative to the previous year’s low is a good real-time recession indicator. See Claudia Sahm (2019), “Direct Stimulus Payments to Individuals” [archived PDF], Policy Proposal, The Hamilton Project at the Brookings Institution (Washington: THP, May 16). (return to text)
  3. Information about the review of monetary policy strategy, tools, and communications is available on the Board’s website. Also see Richard H. Clarida (2019), “The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices” [archived PDF], speech delivered at the 2019 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, February 22; and Jerome H. Powell (2019), “Monetary Policy: Normalization and the Road Ahead” [archived PDF] speech delivered at the 2019 SIEPR Economic Summit, Stanford Institute of Economic Policy Research, Stanford, Calif., March 8. (return to text)
  4. See Lael Brainard (2016), “The ‘New Normal’ and What It Means for Monetary Policy” [archived PDF] speech delivered at the Chicago Council on Global Affairs, Chicago, September 12. (return to text)
  5. See Lael Brainard (2017), “Understanding the Disconnect between Employment and Inflation with a Low Neutral Rate” [archived PDF], speech delivered at the Economic Club of New York, September 5; and James H. Stock and Mark W. Watson (2007), “Why Has U.S. Inflation Become Harder to Forecast?” [archived PDF], Journal of Money, Credit and Banking, vol. 39 (s1, February), pp. 3–33. (return to text)
  6. See Lael Brainard (2015), “Normalizing Monetary Policy When the Neutral Interest Rate Is Low” [archived PDF] speech delivered at the Stanford Institute for Economic Policy Research, Stanford, Calif., December 1. (return to text)
  7. The projection materials for the Federal Reserve’s SEP are available on the Board’s website. (return to text)
  8. For example, the Blue Chip Consensus long-run projection for the three-month Treasury bill has declined from 3.6 percent in October 2012 to 2.4 percent in October 2019. See Wolters Kluwer (2019), Blue Chip Economic Indicators, vol. 44 (October 10); and Wolters Kluwer (2012), Blue Chip Economic Indicators, vol. 37 (October 10). (return to text)
  9. See Michael Kiley and John Roberts (2017), “Monetary Policy in a Low Interest Rate World” [archived PDF], Brookings Papers on Economic Activity, Spring, pp. 317–72; Eric Swanson (2018), “The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates” [archived PDF] NBER Working Paper Series 25123 (Cambridge, Mass.: National Bureau of Economic Research, October); and Hess Chung, Etienne Gagnon, Taisuke Nakata, Matthias Paustian, Bernd Schlusche, James Trevino, Diego Vilán, and Wei Zheng (2019), “Monetary Policy Options at the Effective Lower Bound: Assessing the Federal Reserve’s Current Policy Toolkit” [archived PDF], Finance and Economics Discussion Series 2019-003 (Washington: Board of Governors of the Federal Reserve System, January). (return to text)
  10. The important observation that some consumers and businesses see low inflation as having benefits emerged from listening to a diverse range of perspectives, including representatives of consumer, labor, business, community, and other groups during the Fed Listens events; for details, see this page. (return to text)
  11. See Lael Brainard (2017), “Cross-Border Spillovers of Balance Sheet Normalization” [archived PDF] speech delivered at the National Bureau of Economic Research’s Monetary Economics Summer Institute, Cambridge, Mass., July 13. (return to text)
  12. See, for example, James Bullard (2018), “A Primer on Price Level Targeting in the U.S.” [archived PDF], a presentation before the CFA Society of St. Louis, St. Louis, Mo., January 10. (return to text)
  13. See, for example, Lars Svensson (2019), “Monetary Policy Strategies for the Federal Reserve” [archived PDF] presented at “Conference on Monetary Policy Strategy, Tools and Communication Practices,” sponsored by the Federal Reserve Bank of Chicago, Chicago, June 5. (return to text)
  14. See Board of Governors of the Federal Reserve System (2019), “Minutes of the Federal Open Market Committee, September 17–18, 2019,” press release, October 9; and David Reifschneider and David Wilcox (2019), “Average Inflation Targeting Would Be a Weak Tool for the Fed to Deal with Recession and Chronic Low Inflation” [archived PDF] Policy Brief PB19-16 (Washington: Peterson Institute for International Economics, November). (return to text)
  15. See Janice C. Eberly, James H. Stock, and Jonathan H. Wright (2019), “The Federal Reserve’s Current Framework for Monetary Policy: A Review and Assessment” [archived PDF] paper presented at “Conference on Monetary Policy Strategy, Tools and Communication Practices,” sponsored by the Federal Reserve Bank of Chicago, Chicago, June 4. (return to text)
  16. See Board of Governors of the Federal Reserve System (2019), “Minutes of the Federal Open Market Committee, July 31–August 1, 2018” [archived PDF] press release, August 1; and Board of Governors (2019), “Minutes of the Federal Open Market Committee, October 29–30, 2019” [archived PDF] press release, October 30. (return to text)
  17. For details on purchases of securities by the Federal Reserve, see this page. For a discussion of forward guidance, see this page. See, for example, Simon Gilchrist and Egon Zakrajšek (2013), “The Impact of the Federal Reserve’s Large-Scale Asset Purchase Programs on Corporate Credit Risk,” Journal of Money, Credit and Banking, vol. 45, (s2, December), pp. 29–57; Simon Gilchrist, David López-Salido, and Egon Zakrajšek (2015), “Monetary Policy and Real Borrowing Costs at the Zero Lower Bound,” American Economic Journal: Macroeconomics, vol. 7 (January), pp. 77–109; Jing Cynthia Wu and Fan Dora Xia (2016), “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound,” Journal of Money, Credit and Banking, vol. 48 (March–April), pp. 253–91; and Stefania D’Amico and Iryna Kaminska (2019), “Credit Easing versus Quantitative Easing: Evidence from Corporate and Government Bond Purchase Programs” [archived PDF], Bank of England Staff Working Paper Series 825 (London: Bank of England, September). (return to text)
  18. See Board of Governors of the Federal Reserve System (2010), “Strategies for Targeting Interest Rates Out the Yield Curve,” memorandum to the Federal Open Market Committee, October 13, available at this page; and Ben Bernanke (2016), “What Tools Does The Fed Have Left? Part 2: Targeting Longer-Term Interest Rates” [archived PDF] blog post, Brookings Institution, March 24. (return to text)
  19. See Ben Bernanke, Michael Kiley, and John Roberts (2019), “Monetary Policy Strategies for a Low-Rate Environment” [archived PDF], Finance and Economics Discussion Series 2019-009 (Washington: Board of Governors of the Federal Reserve System) and Chung and others, “Monetary Policy Options at the Effective Lower Bound,” in note 9. (return to text)