The application of cointegration and error correction methodology to estimate aggregate consumption equations relating consumer spending to labor income and household wealth shows unequivocally that wealth has significant effect on consumer spending. Still, the long-term marginal propensity to...

The long-term bond rate is cointegrated with the actual one-period inflation rate during two sample periods, 1961Q1 to 1979Q3 and 1961Q1 to 1995Q4. This result indicates that in the long run the bond rate and actual inflation move together. The nature of short-run dynamic adjustments between...

A Federal Reserve reaction function featured here predicts the actual path of the funds rate during most of the period from 1979 to 1997. The estimated function indicates that the Fed has been forward-looking, responding both to actual inflation and to the expected change in its future direction...

Evidence indicates that special factors such as the steepening of the yield curve in the early '90s and the increased availability and liquidity of mutual funds caused the public to redirect part of its savings balances from bank deposits to bond and stock mutual funds from 1990 to 1994. Except...

Inflation is the main determinant of the stochastic component of short-term nominal interest rates. The Federal Reserve can, therefore, permanently lower short rates only by reducing inflation. In the short run, the behavior of nominal rates is determined primarily by the outlook for inflation,...

The “price markup” hypothesis says that prices are marked up over productivity-adjusted wages, implying that prices and wages must be correlated in the long run and that short-run movements in wages help predict short-run movements in prices. The empirical evidence reported here indicates...

This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth...

The “cost-push” view of the inflation process implies that higher wage growth leads to higher future inflation, notwithstanding the nature of Federal Reserve policy and the inflation regime. I test this implication using wage-price data over the sample period 1952Q1–1999Q2, during which...

In the sample periods studied here, the bond rate and actual inflation move together. However, ways in which they have adjusted to each other in the short run have changed since 1979. In the pre-1979 period, when the bond rate rose above the current inflation rate, actual future inflation...

An error-correction model is used to study the long- and short-run determinants of U.S. demand for M2. The money demand function presented here exhibits parameter stability and predicts quite well the actual behavior of M2 growth in the 1980s