March/April 2008

In This Edition

  • A Primer on the Empirical Identification of Government Spending Shocks

    The empirical literature on the effects of government spending shocks lacks unanimity about the responses of consumption and wages. Proponents of shocks identified by structural vector auto­regressions (VARs) find results consistent with New Keynesian models: consumption and wages increase. On the other hand, proponents of the narrative approach find results consistent with neoclassical models: consumption and wages decrease. This paper reviews these two identifications and confirms their differences by using standard economic series. It also uses alternative measures of government spending, output, and the labor market and shows that, although there are minor fluctuations within each identification, the disparate results between the two are robust to the alternative measures. However, under the structural VAR approach, the authors find some differences between the responses to federal and state/local government spending.

  • Friedman and Taylor on Monetary Policy Rules: A Comparison

    The names Milton Friedman and John Taylor are associated with different monetary policy rules; but, as shown in this paper, the difference between their perceptions of how the economy works is not great. The monetary policy rules advanced by Taylor and Friedman are compared by linking the rules to the two economists' underlying views about nominal rigidity, the source of trade-offs, the sources of shocks, and model uncertainty. Taylor and Friedman both emphasized Phillips curve specifications that impose temporary nominal price rigidity and the long-run natural-rate restriction; and they basically agreed on the specification of shocks, policymaker objectives, and trade-offs. Where they differed was on the extent to which structural models should enter the monetary policy decisionmaking process. This difference helps account for the differences in their preferred monetary policy rules.

  • Market Bailouts and the "Fed Put"

    This article was originally presented as a speech at the Cato Institute, Washington, D.C., November 30, 2007.

  • Pandemic Economics: The 1918 Influenza and Its Modern-Day Implications

    Many predictions of the economic and social costs of a modern-day pandemic are based on the effects of the influenza pandemic of 1918. Despite killing 675,000 people in the United States and 40 million worldwide, the influenza of 1918 has been nearly forgotten. The purpose of this paper is to provide an overview of the influenza pandemic of 1918 in the United States, its economic effects, and its implications for a modern-day pandemic. The paper provides a brief historical background as well as detailed influenza mortality statistics for cities and states, including those in the Eighth Federal Reserve District, that account for differences in race, income, and place of residence. Information is obtained from two sources: (i) newspaper articles published during the pandemic and (ii) a survey of economic research on the subject.



Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.