St. Louis Fed's Review: Frontiers in Monetary Policy Research

ST. LOUIS — There's usually a long lag between the time new ideas regarding monetary policy gain acceptance in academic circles and the time they're integrated into the policymaking process.

With that in mind, scholars and policymakers convened in St. Louis last fall to look at the practical implications of recent research in general equilibrium modeling for "Frontiers in Monetary Policy Research," the Federal Reserve Bank of St. Louis' 31st annual economic policy conference.

"One purpose of our annual conferences is to shorten the lag by supporting research aimed directly at issues policymakers care about," said William T. Gavin, vice president and economist at the St. Louis Fed, and the conference coordinator.

The July/August issue of Review, the St. Louis Fed's bimonthly publication of economic and business issues, features papers from the conference. The publication is also available on the Bank's web site: www.stlouisfed.org.

"Three of the six papers focus on the long-term bond market," said Gavin. "Bond markets often play the role of the 'canary in the mineshaft,' providing early warning about shifts in expectations of monetary policy. The longer-term interest rates are also seen as more important for aggregate demand, especially for investment. Because the Fed operates with a target for the interest rate on overnight lending in the market for federal funds, it is natural for us to want to know more about how monetary policy affects the term structure of interest rates and how expectations about monetary policy are revealed in market pricing."

The titles and authors of the papers are:

• "An Estimated DSGE Model for the United Kingdom," by Riccardo DiCecio and Edward Nelson. DiCecio is an economist at the St. Louis Fed and Edward Nelson is an assistant vice president for the Reserve Bank.
• "Macroeconomic Implications of Changes in the Term Premium," by Glenn D. Rudebusch, Brian P. Sack and Eric T. Swanson. Rudebusch is a senior vice president and associate director of research and Swanson is a research advisor at the Federal Reserve Bank of San Francisco. Sack is a vice president at Macroeconomic Advisers.
• "Long-Run Risks and Financial Markets," by Ravi Bansal, a professor of finance at the Fuqua School of Business, Duke University.
• "Arbitrage-Free Bond Pricing with Dynamic Macroeconomic Models," by Michael F. Gallmeyer, Burton Hollifield, Francisco J. Palomino and Stanley E. Zin. Gallmeyer is an assistant professor of finance at the Mays Business School, Texas A&M University. Hollifield is an associate professor of financial economics, Palomino is a doctoral candidate, and Zin is a professor of economics at the David A. Tepper School of Business, Carnegie Mellon University.
• "Monetary Policy as Equilibrium Selection," by Gaetano Antinolfi, Costas Azariadis and James B. Bullard. Antinolfi and Azariadis are professors of economics at Washington University in St. Louis, and Bullard is a vice president and deputy director of monetary analysis at the St. Louis Fed.
• "Model Fit and Model Selection," by Narayana R. Kocherlakota is a professor of economics at the University of Minnesota.

Commentaries are provided by:

• Martin Fuka?, an economist with the Reserve Bank of New Zealand, and Adrian Pagan, a professor of economics at Queensland University of Technology and the University of New South Wales.
• John H. Cochrane, a professor of finance at the Graduate School of Business at the University of Chicago.
• Thomas J. Sargent, a professor of economics and business at New York University.
• Pamela A. Labadie, a professor of economics at The George Washington University.
• Peter N. Ireland, a professor of economics at Boston College.
• Lee E. Ohanian, a professor of economics at the University of California at Los Angeles.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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