Showing papers by "Martin Feldstein published in 1993"
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TL;DR: In this paper, the authors used the broad monetary aggregate M2 to target the quarterly rate of growth of nominal GDP and found that the M2 - GDP link is stable, but the MI - GDP and monetary base - GDP relations are highly unstable.
Abstract: This paper studies the possibility of using the broad monetary aggregate M2 to target the quarterly rate of growth of nominal GDP Our findings indicate that the Federal Reserve could probably guide M2 in a way that reduces not only the long-term average rate of inflation but also the variance of the annual rate of growth of nominal GDP An optimal M2 rule, derived from a simple VAR, reduces the mean ten-year standard deviation of annual GDP growth by over 20 percent Although there is uncertainty about this value because of both parameter uncertainty and stochastic shocks to the economy, we estimate that the probability that the annual variance would be reduced over a ten year period exceeds 85 percent A much simpler policy based on a single equation linking M2 and GDP is shown to be almost as successful in reducing this annual GDP variance Additional statistical tests indicate that M2 is a useful predictor of nominal GDP Moreover, a battery of recently developed tests for parameter stability fails to reject the hypothesis that the M2 - GDP link is stable, but the MI - GDP and monetary base - GDP relations are found to be highly unstable This evidence contradicts those who have argued that the M2 - GDP relation is so unstable in the short run that it cannot be used to reduce the variance of nominal GDP growth
180 citations
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TL;DR: This article reported new estimates of the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform.
Abstract: This paper reports new estimates of the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. This comparison is done by using a panel of more than 4000 individual tax returns created by the Treasury that matches tax returns for the same taxpayers in different years. The analysis emphasizes that the response of taxable income is much more general than the response of traditional measures of labor supply and is likely to be much more sensitive to tax rates. The evidence shows a substantial response of taxable income to changes in marginal tax rates. The differences-of-differences calculations imply an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and could be substantially higher. There is a brief discussion and simulation analysis of the implications of these estimates for the likely impact of the 1993 tax rate increases on tax revenues. Even the lowest estimated elasticity implies that the tax rate changes enacted in 1993 will lead to little additional personal income tax revenue.
156 citations
01 Jan 1993
11 citations
TL;DR: The sharp gyrations of the dollar and of the trade deficit in the 1980s were among the most novel and least understood economic developments of the decade as discussed by the authors, and the reasons for the dollar's swings and the nature of the policy debate about the appropriate government response to the rising and then falling dollar were examined.
Abstract: The sharp gyrations of the dollar and of the trade deficit in the 1980s were among the most novel and least understood economic developments of the decade. This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the reasons for the dollar's swings and the nature of the policy debate about the appropriate government response to the rising and then falling dollar.
6 citations
4 citations
TL;DR: The tax reforms of the 1980s were the most substantial tax changes since the dramatic expansion of personal taxation during World War II as mentioned in this paper, and the role of economic analysis in shaping the tax reforms.
Abstract: The tax reforms of the 1980s were the most substantial tax changes since the dramatic expansion of personal taxation during World War II. This paper. which was written as part of the NBER project on American economic policy in the 1980s. examines the nature of these changes and discusses the reasons why tax policies evolved as they did in the 1980s. Particular attention is given to the role of economic analysis in shaping the tax reforms.
3 citations
TL;DR: This article reviewed some of the major changes in monetary policy during that period and tried to explain why policies changed in the way that they did and looked particularly at the role of economists and economic analysis in shaping those developments.
Abstract: This paper, which was written as a part of the NBER project on American economic policy in the 1980s, reviews some of the major changes in monetary policy during that period. The paper tries to explain why policies changed in the way that they did and looks particularly at the role of economists and economic analysis in shaping those developments.
3 citations
TL;DR: This paper showed that changes in bank reserves brought about by open market operations have had much less effect on M2 than the Fed anticipated for two reasons: (1) reserve requirements now apply to only a small fraction of total M2; and (2) the new bank capital requirements limit some banks' ability to lend.
Abstract: The very slow growth of the broad money supply has been a primary source of U.S. economic weakness in 1990 through 1992. The velocity link between M2 and the subsequent level of nominal GDP has not declined. But changes in bank reserves brought about by open market operations have had much less effect onM2 than the Fed anticipated for two reasons: (1) reserve requirements now apply to only a small fraction of totalM2; and (2) the new bank capital requirements limit some banks’ ability to lend. The Federal Reserve failed to appreciate the importance of these conditions and misjudged the strength of the monetary policy stimulus that it was providing.
3 citations
TL;DR: The authors examines the changes in government spending and budget deficits during the decade of 1980s and analyzes why the deficit increased substantially and looks at the policy options for reducing the deficit that were considered.
Abstract: This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the changes in government spending and budget deficits during the decade. The paper analyzes why the deficit increased substantially and looks at the policy options for reducing the deficit that were considered. The paper discusses the period when the author was a member of the Administration in greater detail than other years in the 19805 and seeks to explain why the policy choices evolved as they did.
3 citations
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TL;DR: The authors examines the changes in government spending and budget deficits during the decade of 1980s and analyzes why the deficit increased substantially and looks at the policy options for reducing the deficit that were considered.
Abstract: This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the changes in government spending and budget deficits during the decade. The paper analyzes why the deficit increased substantially and looks at the policy options for reducing the deficit that were considered. The paper discusses the period when the author was a member of the Administration in greater detail than other years in the 19805 and seeks to explain why the policy choices evolved as they did.
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01 Jan 1993
Posted Content•
TL;DR: The sharp gyrations of the dollar and of the trade deficit in the 1980s were among the most novel and least understood economic developments of the decade as discussed by the authors, and the reasons for the dollar's swings and the nature of the policy debate about the appropriate government response to the rising and then falling dollar were examined.
Abstract: The sharp gyrations of the dollar and of the trade deficit in the 1980s were among the most novel and least understood economic developments of the decade. This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the reasons for the dollar's swings and the nature of the policy debate about the appropriate government response to the rising and then falling dollar.
Posted Content•
TL;DR: This article reviewed some of the major changes in monetary policy during that period and tried to explain why policies changed in the way that they did and looked particularly at the role of economists and economic analysis in shaping those developments.
Abstract: This paper, which was written as a part of the NBER project on American economic policy in the 1980s, reviews some of the major changes in monetary policy during that period. The paper tries to explain why policies changed in the way that they did and looks particularly at the role of economists and economic analysis in shaping those developments.
TL;DR: Boyd and Gertler as discussed by the authors provide a statistical portrait of the commercial banking industry today and their analysis of trends in recent years provide a careful quantification that supports some of the common assertions about our banking system while refuting others.
Abstract: The paper by John Boyd and Mark Gertler is both useful and stimulating. Their statistical portrait of the commercial banking industry today and their analysis of trends in recent years provide a careful quantification that supports some of the common assertions about our banking system while refuting others. Anyone interested in U.S. banking can benefit from a careful study of their paper. There is no doubt that Boyd and Gertler are correct hat the nature of commercial banking is changing and that banks' loans, especially bank loans made by large U.S. banks, are playing a relatively smaller role in financing businesses than they did a generation ago. While the relative decline of an industry is generally not a reason to change government policies, in this case I think it is. It is not just that banks play a very special role in the economy. The more compelling case for changing government policies is that it is the existing government policies themselves that are accelerating the decline of banking and moving the role of banking further from what it would be without such adverse policies. Although much of the traditional lending activity of banks can be carried out by nonbank financial institutions and directly by financial markets, banks are uniquely important in at least three ways. Banks are the principal providers of credit o small and medium-size nonfinancial businesses. Banks are the core of the payment mechanism through check clearing and related transactions. And banks (through the system of reserve requirements) are the link by which the Federal Reserve can in principle control a broad monetary aggregate and therefore nominal GDP.2 I believe that the relative decline of bank lending reflects favorable technological changes as well as inappropriate public policies. To the extent hat government policies continue to weaken banks and to reduce