Speech

Tracking Inflation KentuckyStateUniversity Frankfort,Kentucky November17,2005 Congress has charged the Federal rangeitselfneedstobeabitelastictoallowfor Reserve with a dual mandate: to specialcircumstancesthatmightbeimportantin achieve and maintain both price sta- aparticularyear.OthersontheFed’smainpolicy bilityandhighemployment.Although body,theFederalOpenMarketCommittee there was a time when these two goals were (FOMC)mightprefertostatethegoalsomewhat viewed as competitive, today it is largely agreed differently,butIbelievethatallofushavein that price stability provides the foundation upon mindinflationgoalsthataresocloseonetothe which households and firms are able to make otherthatdifferencesinthegoalarenotreally the decisions that bring the economy to its high- anissue. est sustainable level of employment and most However,thereisanimportantissuethatI rapidsustainablerateofeconomicgrowth.More- strugglewitheverytimeIgotoanFOMCmeeting: over, Federal Reserve success in achieving price Whatpolicywillyieldanoutcomeclosetothe stability,andinobtainingahighdegreeofmarket inflationgoal?Thetaskiscertainlynotaseasy confidence that price stability will remain the norm for the economy in the future, gives the asitmightappearintextbooks.Today,Iwould Fed the freedom to react quickly, and massively liketodiscusswithyoupracticalaspectsof if necessary, to shocks that threaten to raise pursuingapolicythatyieldspricestability.My unemployment to unacceptable levels. remarkswillexpandonthemesthatIhave IhavesaidpreviouslythatIfavoragoalof addressedinseveralprevioustalks. zeroinflation,properlymeasured.Inpractice, Beforeproceeding,Iwanttoemphasizethat becauseofvariousstatisticalproblemsinmeas- theviewsIexpressherearemineanddonot uringprices,thatgoaltranslates,approximately, necessarilyreflectofficialpositionsoftheFederal topricechangesofsomethinglikea1percent ReserveSystem.Ithankmycolleaguesinthe annualrateofincreaseinthechain-priceindex ResearchDivisionoftheFederalReserveBankof forpersonalconsumptionexpenditures—the St.Louisfortheircomments;DickAnderson, PCEpriceindexforshort. vicepresident,andKevinKliesen,associate Initsday-to-daypolicymaking,theFed economist,providedspecialassistance.Iretain focusesonthecorePCEpriceindex,which fullresponsibilityforerrors. excludesvolatilefoodandenergypricesthat Myplanisthis:I’llstartwithsomebasic,but monetarypolicycandolittleabout.Onaverage veryimportanttheoryandexplainwhytheoryis overtime,thetotalandcoreindexeschangeat notenoughforpracticalmonetarypolicymaking. almostidenticalrates.Evenputtingvolatilefood andenergypricesaside,itisnotpossibleto Thatwillbringmetomyapproachoftracking achieveaninflationtargetpreciselyyearbyyear; inflation.Finally,Iwilldiscussbrieflythecurrent thus,mygoalmightbestatedasachangeinthe inflationenvironmentandthenear-termoutlook corePCEindexof0.5to1.5percentperyear.That forinflation. 1 MONETARYPOLICYANDINFLATION MACROECONOMIC THEORY reactstothespeedofthecaritself.Asuccessful driverwilleliminatetheslightnegativecorrela- Thereisanenormousamountofevidence tionbetweenspeedandfuelflowthatarisesfrom thatinflationisfundamentallyamonetaryphe- thelaginthecruisecontrol’soperationbecause nomenon,causedbytoomuchmoneychasing itcannotlookahead. toofewgoods.Yet,policymakerstodayspend Aswithacar’scruisecontrol,supplemented hardlyanyefforttrackingmoneygrowth.How byanalertdriver,FederalReservesuccessin canthatbe? taminginflationhasdestroyedthestatisticalcor- Thereisapropositionincontroltheorythat relationbetweenthecausalvariableandgoal whencontrolisoptimal—policyinstrumentsare variable—moneygrowthandinflation.Because optimallyadjustedtoachievetheintendedgoal— therelationshipbetweenmoneygrowthand thecorrelationbetweentheinstrumentandthe inflationisirregular—especiallyatalowrateof goalwillbecomezero.Consideracaranalogy. inflation—theFeddoesnotattempttocontrol Noonehasanydoubtthattheamountoffuelfed inflationbyachievingamoneygrowthtarget. totheengineregulateshowfastthecargoes.All Instead,theFedsetsatargetforthefederalfunds otherthingsequal,higherfuelflowwillyield rate—theovernightinterestrateintheinterbank higherspeed.Nowconsideracartravelingin lendingmarketforreservesondepositatFederal mountainouscountrywiththecruisecontrolset ReserveBanks.Thefederalfundsrateisthebase for65milesperhour.Supposeyoumeasured interestrateinthefinancialsystem,influencing fuelflowandspeed.Youwouldrecordlarge allotherratessuchastherateonhomemortgages. fluctuationsinfuelflowandhardlyanyfluctua- HowdoestheFedcontrolinflationassuccess- tionsinspeed.Wouldyouconcludethatfuelflow fullyasitdoes?TheFedextractsasmuchinfor- hasnothingtodowiththecar’sspeed? mationasitcanfromallthedataandanecdotal Let’spursuethisanalogyabitfurther.Examin- reportsavailable.Animportantaspectofthis ingthedataclosely,youmightfindaslightnega- workistotracktheinflationprocess—theinternal tivecorrelationbetweenspeedandfuelflow. dynamicsoftheinflationrate.Thatismymain Whenthecarisgoingdownhill,speedmayrise topictoday. abitabove65andfuelflowbebelowaverage; similarly,goinguphillyoumightobservespeed abitbelow65andfuelflowaboveaverage.But TRACKING INFLATION youwouldnotconcludethathigherfuelflow TheideaI’llexploreisthattheFedleans reducesspeed.Whenyouunderstandthefunda- againstpressuresthatwouldmovetheinflation mentaldeterminantsofcarspeed,youwillnot rateoutsidethedesiredrange,likethedriver befooledbyashort-runcorrelationbetween whowatchesthespeedometerandtheterrain speedandfuelflow. aheadtodecidewhethertostepmoreorless Knowingthecharacteristicsofthecruise hardontheacceleratorortapthebrake. control,adrivercandoabitbetterincontrolling Thebasicframeworkhasbeenaroundfora speedthanthecruisecontrolbyitself.Adriver longtime.MarvinGoodfriendpresentedasum- lookingaheadcanbackofftheacceleratorabit maryoftheframeworkataconferenceattheSt. beforethecrestofahilltoavoidgoingabove65 LouisFedlastyear.1Henotesthatthecoreideas downthehill,andpressontheacceleratoralittle ofmacroeconomistsregardinginflationcirca beforestartingupahilltoavoiddroppingbelow 1970were: 65.Everydriverhastheexperienceofnoticing First,pricesofgoodsandservicesareuse- thatthecruisecontroldoesn’tlookahead—itonly fullyregardedasmarkupsfromunitlaborcosts, 1 Goodfriend(2005). 2 TrackingInflation adjustedtonormaloperatingratesandproduc- tledattheNAIRU.Monetarypolicywasoften tivitytrends.Ratesofincreaseofpricesand viewedaspassive,accommodatingwageand wagesdependonrecenttrends,onexpectations priceincreaseslestarecessionresult.Researchers offuturemovements,andonthetightnessof commonlyaddedspecialshockstothebasic marketsforproductsandlabor. framework.Priceshocksfromfood,energyand Variationsinaggregatedemand,whethera exchangeratechangeswerethoughttocome consequenceofpolicyactionsorotherevents, fromoutsidethefundamentaldeterminantsof affectthecourseofwages,prices,output,and wageandpriceinflation. employmentbyalteringthetightnessoflabor AcademicresearchersandFederalReserve andproductmarkets. economistsandpolicymakerscontinuetoemploy Thetightnessofmarketsmaybemeasured thisframework,butimportantaspectshave bytheutilizationratesofproductiveresources, changed.Mostcritically,inthe1970framework includingreportedoradjustedunemployment theformationofexpectationsaboutinflationwas ratesandcapacityoperatingrates.Atanygiven assumedtobelargelybackward-looking;this utilizationrate,realoutputtendstogrowata approachsoonchangedasaconsequenceofwork steadypace,reflectingtrendsinsuppliesoflabor byThomasSargent,RobertLucasandothers. andcapitalandinproductivity. Althoughwecouldsimplyobserveandtrack Inflationrisesathighemploymentrates inflationdirectly,andstopthere,themoredetailed becausetightmarketssystematicallyandrepeat- wage-priceframeworkisuseful.Insettingmone- edlygeneratewageandpriceincreasesinaddi- tarypolicythereisrelevantinformationbeyond tiontothosealreadyincorporatedinexpectations theinflationrateitself;wegaininsightbyexploit- andhistoricalpatterns. ingtheidentitythatinflationisequaltotherate ThereexistsaFriedman-Phelps“natural”rate ofchangeofunitlaborcostsmultipliedbya oflabormarkettightness—thenon-accelerating markupfactor.2 inflationrateofunemployment,orNAIRU—at Inworkingwiththisconceptualframework, whichthedegreeofresourceutilizationgener- itissometimesconvenienttobeginwithwage atesnoupwardordownwardpressureonwages determinationinthelabormarket.ButIpreferto andpricesandisconsistentwithexpectedpaths thinkofthedescriptionstartingwiththelabor ofoutput,employmentandpricesasseenby marketassimplyaconvenientplacetobreakinto workersandfirms.Inequilibrium,theexpected thecircleofsimultaneousdetermination,inwhich pathofpricesisasteadyrateofinflation,abstract- wages,prices,employment,output,productivity ingfromtemporarydisturbances. andprofitmarginsarealldeterminedtogether. The1970viewcontainedacausalchainflow- Wagedeterminationdependsonallthefactors ingfromtightnessoflabormarketstoinflation. thataffectlaborsupplyanddemanddecisions, UnemploymentbelowtheNAIRUwouldcause includinginflationexpectationsandtrendpro- wagestorisemorequickly.Becauseproductivity ductivitygains.Thatis,nothingisdetermined growthwasviewedaslargelyindependentof “first”orindependentlyoftheothervariables. wage-pricedetermination,higherwagegrowth Thisisacomplexframeworkandrequires wouldincreasetherateofgrowthofunitlabor judgmentinapplication.Thewagedetermination costs.Costincreases,inturn,wouldleadfirms processinvolvesnumerousvariablesand,most toraisepricestomaintainnormalprofitmargins. likely,somebargainingsituationswheretheout- Intime,inflationexpectationswouldriseto comeisuncertain.Themarkuppricingassump- reflecthigheractualinflationandthenwages tionrequiresinformationregardingtheprice wouldalsorisemorerapidly.Therecouldbeno elasticitiesofdemand,andhowtheychange equilibriumunlesstheunemploymentrateset- throughtimeandoverthebusinesscycle.For 2 Kohn(2005b). 3 MONETARYPOLICYANDINFLATION example,firmsfacingintenseinternationalcom- soastoincreasetherealshortratewhenactual petitionmayhavedifficultypassingalongcost andexpectedinflationincreaseandtodecrease increases.Suchfirmsmaysufferlowerprofit therealshortratewhenactualandexpected marginsinthefaceofcostincreasesratherthan inflationdecreases.Second,policyoutcomes beabletoincreaseprices. generallywillbebetterwhenthetargetrate Thedirectionofcausationcanruneither respondstothegapbetweeneconomicactivity direction.Supposeafirmfindscompetitive andtheeconomy’spotentiallevelofactivity. pressuresincreasing—itmaybeabletopassthat Aprominentresultobtainedfromthese pressurebackwardintowagesandthelabormar- modelingeffortsisthattheeasewithwhichthe ket.TherecentexperiencesofU.S.airlineworkers centralbankachievesitsgoalsofpricestability andsomeautomobilepartsworkersareexamples. andmaximumsustainableeconomicgrowthis Inothercases,firmsmaynotbeabletoresist directlyrelatedtothetransparencyandcredibility upwardpressureonwagesandthuswagepres- ofitspolicymaking.Thisidea,byitself,ofcourse, suremayshowupinpressureonprices.Acurrent isnotnew.Butthemodelsmakeclearerthe examplemightbewagesoftruckdrivers;with inter-relationshipbetweenthedecisionmaking robustdemandfordriversandalimitedsupply processesofcentralbankpolicymakersand ofpersonswillingtospendlongperiodsonthe thoseofhouseholdsandfirms. roadawayfromtheirfamilies,driverwagesare Inpartbecausebothhouseholdsandfirms rising. aremodeledasprimarilyforward-looking,the Rapidchangesintechnologyalsoarenot preferredvariablefortrackingthelikelyfuture easilyaddressedwithinthemodel:Doesafavor- pathofinflationinsuchmodelsisthemarket’s abletechnologyshockincreaseemployment ownexpectationoffutureinflation.Dataregard- becauseeachworkerisnowmoreproductive,or ingmarketexpectationsofinflationareavailable doesitreduceemployment,despitedecreasesin fromsurveys—includingtheMichigan,BlueChip, unitcosts,becausethepriceelasticityofdemand andPhiladelphiaFedsurveys—andfromthe issmall?Theanswersarefarfromobvious,and marketforTreasuryinflation-protectedsecurities answersthatmightbecorrectforasinglefirm (TIPS).WithintheFederalReserve,forecasting neednotbecorrectfortheaggregateeconomy. inflationbasedoncurrentandproposedfuture Inmodernmacroeconomicmodels,market policysettingsisanimportantresponsibilityof behaviordependsoncentralbankbehavior, theFOMCstaff. becausemarketexpectationsdependonwhat Althoughmarketexpectationsofinflation thecentralbankisexpectedtodo.Thus,inthese areextremelyimportantforFedpolicymaking, modelsthebehaviorofthecentralbankisgov- theyarenotenough.TheFedwantstolookdown ernedbyrules,andcentralbanksarealmost theroad,sothatitcanadjustitsfedfundsrate alwaysassumedtoconductmonetarypolicyby choosingatargetforashort-termnominalrateof targettopreventinflationandinflationexpecta- interest. tionsfromchanginginthefirstplace.Clearly, Perhapsthebest-knownpolicyruleisthat theinflationratedoeschangeandsotheFedis proposedbyJohnTaylorin1993.Ihaveprevi- notcompletelysuccessful.Butinflationexpecta- ouslydiscussedtherelationshipbetweenthe tionshavebeenquitestableinrecentyears,which TaylorruleandcurrentFedpolicymaking.3Here, meansthattheFeddoesagoodjobofresponding Iwishtonotetwoaspects.First,centralbanks toavailableinformation,andinretainingmarket thatuseanominalinterestrateasthepolicy confidence,sothatthemarketdoesnothavea instrumentmustadjustthattargetmorethan solidbasisformajorchangesinitsinflation one-to-oneinresponsetomovementsininflation, outlook. 3 Poole(2005b). 4 TrackingInflation EMPIRICAL EVIDENCE AND Finally,therearesome“shocks”thatappear gradually,surroundedbycontroversyanddis- TRACKING INFLATION agreement—the1990sriseofproductivitygrowth Ina2005paper,JamesStockandMarkWatson, issuchanexample.FOMCtranscriptsshowthat usingdatathroughtheendof2004,conclude ChairmanGreenspanwasconcernedasearlyas 1992thatofficialdatawereunderstatingproduc- • thatinflationhasbecome“easier”tofore- tivitygrowth.4Nomodelwouldhavesubstituted cast,inthesensethatmodelshavelow forhisexperience,intuition,anddiscussions forecasterrorsbecauseinflationrateshave withindustrycontacts. beenlowandstable;and Thetheoreticalpricedeterminationmodel • thatinflationhasbecome“moredifficult” providestheframeworkwithinwhichdetailed toforecastinthesensethatthecontribution judgmentsbasedonanecdotalandotherinforma- totheforecastofvariablesotherthanlags tionarebroughtintopolicydecisions.Inflation- ofinflationhaslargelyvanished. trackinginvolvestrackingmarketexpectations ofinflationandacarefulanalysisofwagetrends, Onbalance,StockandWatson’sresultstellus productivityandprofitmargins.Allofthese that“trackinginflation”hasbecomeeasierthan helpmetoframemyoutlookforinflationand itwasadecadeago—becausetherateislower whatmonetarypolicywouldbeappropriateto andvariesless—butalsoismoredifficultbecause maintainaninflationratethatcanbedescribed futureinflationisfarlesssensitivetomeasures as“lowandstable.” ofrealeconomicactivity.Theseresultsarefunda- Itishighlydesirablethatpolicypracticebe mentallyaconsequence,Ibelieve,oftheFed’s formalizedtothemaximumextentpossible— successinforecastinginflation,andinadjusting thatisaclearimplicationofmodernforward- policysothatinflationremainsquitesteady. lookingmodels.However,monetaryeconomists havenotyetdevelopedaformalrulethatislikely tohavebetteroperatingpropertiesthantheFed’s REAL-WORLD POLICY MAKING currentpractice.CurrentFedpolicypractices ForecastspresentedtotheFOMCbyitsstaff havealargesystematiccomponent,eventhough combinemodel-basedinformationwithjudgment. Icouldnotwritedownthatpracticeinitsentirety AmajorelementofthestoryisthattheFedis ineitherasingleequationorasetofequations. successfulinextractinginformationfromobserv- Considerarecentexample.Intheabsenceof abledatausedinmodelsbyapplyinginformation otherinformation,slowemploymentgrowthin beyondobservabledata.Thatiswherejudgment SeptemberandOctober2005wouldordinarily iscriticallyimportant. beinterpretedasevidencethattheeconomyis Policymakersoftenhavetoact“observation weakeningandthat,intime,inflationriskswould byobservation,”evaluatingincomingdataand probablyfall.However,boththemarketandthe respondingtoevents.ExamplesincludetheAsian Fedrealizedthatrecentemploymentdatawereof financialmarketcrisis;theinternationalcapital limitedvaluebecausedistortionsfromHurricanes marketseventsthatfelledLongTermCapital KatrinaandRitaweresolarge.Thedatawere Management;the9/11terroristattacks;and,most discountedforgoodreason;theinterpretationof recently,HurricanesKatrinaandRita.Moreover, thedatawastransparentandpredictable,once largeshocksoftendifferfromeachotherintheir theaberrationsinthedatawereobserved.Butit sizeandeffect,furthertaxingtheknowledge, wouldnothavebeenpossibletoexplainin skillsandjudgmentofpolicymakers. advanceexactlyhowtohandlethesuspectdata. 4 AndersonandKliesen(2005). 5 MONETARYPOLICYANDINFLATION TheFed’scurrentpolicyruleisapatternof theFOMChasaclearcommitmenttopricesta- behaviorwhichyieldsanenvironmentinwhich bility,andthatleadsmetobelievethattheCom- policyactionsarehighly,thoughnotperfectly, mitteewilladjustitspolicystanceinthefuture predictableinthemarkets.Operatingpolicyby asrequiredbyincominginformation.Ifnewinfor- sucharulemakestrackinginflationafarsimpler mationcallsforfurthertightening—andIempha- taskthaninthe“badolddays”whenmarkets sizethe“if”becauseIdonothaveacrystalball formedtheirexpectationsandforecastswithouta thatpermitsmetopredictincominginformation— clearunderstandingofthepolicymakingprocess. thenthatiswhattheFOMCwilldo. Numerousimprovementsinitscommunica- tionwiththepublicduringthelastdecadehave CURRENT INFLATION increasedthepublic’sunderstandingofmonetary DEVELOPMENTS policymaking,andmadecleartheFed’scommit- menttopricestability.6Nevertheless,higher Sofar,Ihavespokenprimarilyaboutthe energypricesareachangeinrelativepricesthat macroeconomicsoftrackinginflation.I’llclose willinevitablyleadtochangesinotherrelative withabriefdiscussionofthecurrentinflation prices—anincreaseinthepriceofgasolinerela- environment. tivetoothergoodsandservices,forexample, Energypricesarethebigstory.SinceFebruary affectsSUVpricesandsales. 2002,theenergycomponentofthePCEprice Energypriceincreaseswillaffectother indexhasincreasedby85percent,whilethe prices,atleastforthemediumterm,butshould corePCE(thatis,excludingfoodandenergy)has havelittleimpactonlonger-runinflationexpec- increasedlessthan7percent.NeithertheFed tations.InmyearlieranalysisofNewKeynesian northemarketanticipatedenergypriceincreases models,Isuggestedthatevidenceregardingthe anythingclosetowhatwehaveobserved. appropriatenessofmonetarypolicy’sstancecan Measuresoftotalinflationreflecttheeffect begleanedfrommarketinflationexpectations. ofenergyprices.Throughthefirstninemonths Whatarethesedatasaying?ForTIPS,current of2005,thetotalPCEindexincreasedata4per- ratespreadsrelativetonon-indexedTreasuries centannualrate,ontrackforthefastestannual increasesince1990.Thetotalconsumerprice suggestall-itemsCPIinflationofapproximately index(CPI)showsanevenbleakerpicture, 2.5percent,essentiallyunchangedfromlast increasingtodateata5percentannualrate,the year.SinceincreasesintheCPItendtobeapproxi- fastestsince1981.5Suchinflationratesraise matelyhalfapercentagepointgreaterthanthe concernsregardingerosionofhouseholds’real corePCEdeflator,thesefiguressuggestthemarket purchasingpower,eveniftheyarenotdueto hasconsiderablefaithintheFOMC’scommitment monetaryfactors. topricestability. Todate,itappearsthatlittleoftheenergy TheSurveyofProfessionalForecastersand priceincreasehasbledoverintocoreinflation. theUniversityofMichigan’sSurveyofConsumer CorePCEinflationhasbeenfairlystableforthe CPIinflationexpectationsyieldsimilarresults.I pastseveralyears,andIanticipateitwillremain wouldofferawordofcaution,however,regard- so.Mypredictionthatlittleoftheenergyprice ingover-interpretingmarket-basedexpectation inflationwillbleedintocoreinflationisbased measures.Paradoxically,iftheFedeverbecomes onmybeliefthatinflationexpectationsarewell- perfectlycrediblewithrespecttoitspolicygoals, anchoredandmyobservationthattheFOMChas theresultingcredibilitywilldestroytheinforma- tighteneditspolicystanceconsiderably.Moreover, tionflowingbacktoitfromfinancialmarkets: 5 AnnualinflationismeasuredDecember-to-December. 6 Poole(2005a)providesachronologicallistofsuchcommunicationimprovements. 6 TrackingInflation whenevertheFedlookedintothemirrorofthe REFERENCES privatesector,itwouldseereflectedbackonlyits Anderson,RichardG.andKliesen,KevinL. ownimage.ItisforthisreasonthatIhaveempha- “ProductivityMeasurementandMonetary sizedthatpolicymakerscannotrelax—weneed PolicymakingDuringthe1990s.”FederalReserve todothebestwecandiggingintoinformationof BankofSt.Louisworkingpaper2005-067,October allsortstoprovidetheclearestpossibleview 2005. downtheroadsothatpolicyadjustmentspre- emptinflation.MygoalisfortheFedtobecome Clarida,Richard;Gali,JordiandGertler,Mark.“The perfectlycredible. ScienceofMonetaryPolicy:ANewKeynesian Althoughanalyzingthelikelyeffectofenergy Perspective.”JournalofEconomicLiterature, pricesoncorepricesisamajorissuetoday, December1999,37,pp.1661-707. becauseenergypricechangeshavebeensolarge, wearealsofacedwithsomepuzzleselsewhere. Goodfriend,Marvin.“TheMonetaryPolicyDebate Inthethirdquarter,wagesasmeasuredbynon- SinceOctober1979:LessonsforTheoryand Practice.”FederalReserveBankofSt.Louis farmcompensationperhourare5.8percentabove Review,March/April2005,Part2,pp.243-62. theyear-agolevel,whereastheEmployment CostIndexisonly2.9percenthigherthanayear Kohn,Donald.“Remarks.”Presentedatthe ago.Idonotmyselfunderstandfullythediscrep- InternationalResearchForumonMonetaryPolicy. ancybetweenthesetwomeasuresofwagechange. Frankfurt,May20,2005a. Productivitygrowthisholdingupwell,withthe thirdquarterobservationfornonfarmoutputper Kohn,Donald.“Remarks.”Presentedattheconference hour2.9percentaboveitslevelayearago.The QuantitativeEvidenceonPriceDetermination, corporateprofitsshareofGDPisbacktoits1997 WashingtonDC,September29,2005b. peak,suggestingthatcompaniesdohaveincreased pricingpowerenablingthemtoexpandprofit Ljungqvist,LarsandSargent,ThomasJ.Recursive margins. MacroeconomicTheory.MITPress,2004. Puttingalltheseindicatorstogether,core Orphanides,Anathasios,andVanNorden,Simon. inflationandinflationexpectationshavebeen “TheReliabilityofInflationForecastsBased contained,butunderlyingdeterminantsofinfla- OutputGapEstimatesinRealTime.”Financeand tionsuggestcaution.Dependingonwhatmeasure EconomicsDiscussionSeriesWorkingPaper2004- isused,wagechangehasbeenaboutsteadyor 68,FederalReserveBoardofGovernors,December hasrisen.TheprofitshareofGDPhasrisen,sug- 2004. gestingthatfirmshaveincreasedpricingpower. Fortunately,productivitygrowthremainsrobust. Poole,William.“InflationSignalsandInflation Tomovetoapre-automobilemetaphor,we Noise.”PresentedattheUniversityofArkansasat aredoingourbesttokeepthedoorclosedbefore LittleRock,April6,2004. thecoreinflationhorseleavesthebarn.Thesitu- ationisabitcomplicated.Theenergypricehorse Poole,William.“HowPredictableIsFedPolicy?” PresentedattheUniversityofWashington,Seattle, didescapethebarnand,inmyview,therewasn’t October4,2005a. athingtheFedcoulddoaboutitwithoutwreck- ingthebarn.Butwehavedonewhatwecouldto Poole,William.“TheFed’sMonetaryPolicyRule.” keeptheotherhorsesinthebarn.Myoutlookis PresentedattheCatoInstitute,October14,2005b. thattheotherhorseswillstayinthebarnand thatwehavebeenwisenottohaveoverreacted Rudd,Jeremy,andWhelan,Karl.“ModelingInflation toenergypriceincreases. Dynamics:ACriticalSurveyofRecentResearch.” 7 MONETARYPOLICYANDINFLATION PreparedfortheFederalReserveBoard/Journalof Money,Credit,andBankingconference QuantitativeEvidenceofPriceDetermination, September9,2005. Stock,JamesH.andWatson,MarkW.“Forecasting Inflation.”JournalofMonetaryEconomics,1999. Stock,JamesH.andWatson,MarkW.“HasInflation BecomeHardertoForecast?”Preparedforthe FederalReserveBoard/JournalofMoney,Credit, andBankingconferenceQuantitativeEvidenceof PriceDetermination,September9,2005. Woodford,Michael.“NonstandardIndicatorsfor MonetaryPolicy:CanTheirUsefulnessBeJudged fromForecastingRegressions?”InN.GregMankiw, ed.,MonetaryPolicy.UniversityofChicagoPress fortheNBER,1994,pp.95-115. Woodford,Michae.InterestandPrices:Foundations ofaTheoryofMonetaryPolicy.Princeton UniversityPress,2003. 8

William Poole (2005, November 16). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20051117_poole

@misc{wtfs_speech_20051117_poole,
  author = {William Poole},
  title = {Speech},
  year = {2005},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20051117_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}