NBER Working Papers by William Poole

The Shadow Open Market Committee was formed in 1973 in response to rising inflation and the apparent unwillingness of U.S. policymakers to implement policies necessary to maintain price stability. This paper describes how the Committee’s policy views differed from those of most Federal Reserve officials and many academic economists at the time. The Shadow argued that price stability should be the primary goal of monetary policy and favored gradual adjustment of monetary growth to a rate consistent with price stability. This paper evaluates the Shadow’s policy rule in the context of the New Keynesian macroeconomic model of Clarida, Gali, and Gertler (1999). Simulations of the model suggest that the gradual stabilization of monetary growth favored by the Shadow would have lowered inflation...

The decline of velocity in the 1980s is a surprise that should not have been. Economists unwisely relied on a velocity trend of 3 percent per year when they should have insisted on an economic explanation for rising velocity. An analysis of velocity and interest rates from 1915 to 1986 suggests that the interest elasticity of money demand is substantially higher than previously thought. The postwar increase of rates followed by a major decline of rates in the 1980s explains velocity behavior. The large decline in velocity almost certainly would have caused severe economic problems had the Federal Reserve not accommodated the decline through more rapid money growth. Federal Reserve policy between October 1979 and October 1982 emphasized control of money growth. Money market behavior during ...