News of enormous trade deficits began affecting asset prices in the mid-1980s. Some have suggested that trade deficit news contributed to the October 1987 stock market crash. This argument would be more compelling if the trade deficit were a source of systematic risk to asset prices, since then...

The Federal Reserve currently pursues both price stability and full employment. Congress is debating whether to make price stability the overriding goal of monetary policy. This paper argues against such a change for several reasons. First, under the current mandate the U.S. has experienced low...