My latest Macro Musings podcast is with Peter Ireland. Peter is a professor of economics at Boston college, a research associate at the National Bureau of Economic Research, and a member of the shadow open market committee. Peter has also been a visiting scholar at numerous Federal Reserve banks. Peter has published widely in monetary economics and has been on the editorial board of a number of top journals. Peter joins me to talk about monetary policy.
We begin our conversation by talking about his journey into macroeconomics. Peter did his graduate work at the University of Chicago where he studied under Bob Lucas, John Cochrane, and Michael Woodford. He shares how the spirit of Milton Friedman was very much alive during his time there and what that meant for learning macroeconomics.
We then discuss the operational side of central banking by reviewing the meaning and role of the instruments, intermediate targets, and ultimate goals of monetary policy. Among other things, we discuss why central banks use short-term interest rates as the instrument of monetary policy rather than the monetary base and draw upon the classic Poole (1970) paper for insight.
We next discuss the Taylor Rule as a tool to connect the instrument of monetary policy to its goals and then consider whether money supply aggregates could be a substitute for the Taylor Rule. We go on to discuss whether money has additional information not found in interest rates that could inform policy making. The answer seems to be yes if the Divisia monetary aggregates are used rather than the simple sum measures of the money supply. Peter notes that if one uses Divisia measures the empirical results showing a breakdown in the money supply - nominal income relationship are overturned. There is more and the conversation was fascinating throughout.
Peter Ireland's homepage
Peter Ireland's twitter account