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David Beckworth

David Beckworth



Articles by David Beckworth

The Neutral Level of NGDP and the NGDP Gap: Q3 2020

18 days ago

The nominal GDP (NGDP) gap, a measure of unexpected changes in the dollar size of the US economy, is the percentage difference between the actual and the neutral level of NGDP. The neutral level of NGDP, in turn, is a sum of all dollar incomes expected by households and businesses coming into a specific time period. In the third quarter of 2020, the NGDP gap was −4.77 percent, a significant narrowing from the −11.62 percent NGDP gap experienced in the second quarter of 2020 (see figures above).
Despite this progress, an NGDP gap of −4.77 percent indicates that the dollar size of the economy is still significantly smaller than prepandemic expectations. Specifically, the neutral level of NGDP was $22.22 trillion in the third quarter of 2020, whereas actual NGDP came in at $21.16 trillion.

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A New Way to Manage Inflation

August 27, 2020

In a historic move, Federal Reserve Chair Jay Powell today announced a new framework that will govern how the US central bank conducts monetary policy. Powell, speaking at a virtual conference, outlined the Fed’s plans to change how it approaches inflation, replacing its current policy, which raises interest rates as inflation nears its target, with the adoption of a “make-up policy” that relies on an average inflation target to determine whether to raise interest rates or not. This new approach, if credibly implemented, would be a big change from what the Fed is currently doing and could potentially dampen the business cycle.
This announcement, in short, could be very consequential for the US economy. To understand why, it is useful to take a close look at the key parts of this new

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A Fed for Next Time: Ideas for a Crisis‐​Ready Central Bank: Panel 4 Preserving Monetary Autonomy

July 9, 2020

Introductory Remarks
David Beckworth: Greetings, and welcome back to our conference titled “A Fed for Next Time: Ideas for a Crisis-Ready Central Bank.” In this conference, we are looking at ways to improve the ability of the Fed to better respond to future crises in a way that avoids entanglement with politics. This conference is being hosted by the Mercatus Center and the Cato Institute. George Selgin and I have been the hosts. We’ve had three great panels so far, ones that have looked at reforming credit policy at the Fed, better defining the boundaries between fiscal and monetary policy, and one on modernizing liquidity facilities. If you haven’t already seen them, please go check them out on the Cato website for the conference event.
George and I have been taking turns hosting the

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The Neutral Level of NGDP and the NGDP Gap: Q1 2020

May 14, 2020

The nominal GDP (NGDP) gap, a measure of the stance of US monetary policy, is the percent difference between the actual level and the neutral level of NGDP. The neutral level of NGDP is the dollar size of the economy when monetary policy has been neither expansionary nor contractionary. In the first quarter of 2020, the NGDP gap experienced its sharpest decline since 2008, falling to −2.03 percent (see figures above).
The sudden decline in the NGDP gap indicates that the COVID-19 crisis has morphed from a supply shock—a sudden decline in the productive capacity of the US economy—into an even larger spending shock. To be clear, the sharp drop in the NGDP gap does not mean that the Federal Reserve (Fed) has intentionally tightened monetary policy. Instead, it indicates that  monetary

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James Sweeney on the Money View Framework and COVID-19’s Implications for the Macro Economy

March 18, 2020

James Sweeney is the chief economist at Credit Suisse and joins the show as a part of our ongoing special coverage to talk about the coronavirus or COVID-19 and its implications for the economy. Specifically, David and James discuss what this pandemic means for the plumbing of the financial system, interest rates, and the type of recession we might experience.
David Beckworth: Our guest today is James Sweeney. James is the chief economist of Credit Suisse and joins us today to talk about the coronavirus or COVID-19, and its implications for the economy. Especially, what it means for the plumbing of the financial system, interest rates and the type of recession we might experience. James, welcome to the show.
James Sweeney: Thank you. Very happy to be here.
Beckworth: Glad to have you on.

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COVID-19 Pandemic, Direct Cash Transfers, and the Federal Reserve

March 18, 2020

The economic fallout from the pandemic of COVID-19 is likely to be large. Entire portions of the US economy are shutting down, and some forecasters are predicting that GDP will contract as much as 10 percent in 2020. Jason Furman, former chair of the Council of Economic Advisers for President Obama, believes the contraction could be even worse and surpass the depths of the Great Recession of 2007–2009. As a result, many are calling for a large government response, including direct cash transfers to households. There appears to be growing momentum for such programs, with Republican and Democratic senators calling for direct cash payments to households for the duration of the crisis. Even the White House is seriously considering this option.
At the same time, the COVID-19 shock has

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Paul Schmelzing on the 'Suprasecular' Decline of Global Real Interest Rates

February 24, 2020

Paul Schmelzing is an economic historian, a visiting scholar at the Bank of England and a postdoc at the Yale University School of Management. Paul has written an influential new paper on the long history of interest rates titled, "Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018." Specifically, Paul and David discuss the implications of this paper’s findings for secular stagnation theory, Thomas Piketty’s inegalitarian wealth spiral, and for macroeconomic policy more generally.
David Beckworth: Our guest today is Paul Schmelzing. Paul is an economic historian, a visiting scholar at the Bank of England and a postdoc at the Yale School of Management. Paul has written a riveting paper on the long history of interest rates. It is titled, "Eight

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Joseph Gagnon on Central Banks’ Ability to Fight the Next Recession

January 27, 2020

Joseph Gagnon is a senior fellow at the Peterson Institute for International Economics and formerly, a senior staffer at the Federal Reserve Board of Governors. Joseph is also a returning guest to Macro Musings. He joins the show today to discuss his recent policy brief titled, “Are Central Banks Out of Ammunition to Fight a Recession? Not quite.” Specifically, David and Joseph discuss the variety of monetary policy tools available to central banks to combat the next recession (with special emphasis on the Federal Reserve, European Central Bank, and Bank of Japan). Joseph also makes the case that the ECB should adopt a formal review of its monetary policy framework.
Read the Full Episode Transcript
Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If

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Binyamin Appelbaum on "The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society"

November 18, 2019

Binyamin Appelbaum is the lead writer on business and economics for the editorial board of The New York Times, and he was previously a Washington correspondent for The Times covering the Federal Reserve and other aspects of economic policy. Binyamin is also a returning guest to the show, and joins today to talk about his new book, *The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society*. David and Binyamin also discuss Milton Friedman’s influence on economic thought during the postwar era, the history of the emergence of supply side economics, and the consequences that have arisen from committing too strongly to free market principles.
Read the Full Episode Transcript
Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you

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Bill Nelson on the Repo Market Stress, the Fed's Operating System, and the Prospects for a Standing Repo Facility

October 7, 2019

David Beckworth: Our guest today is Bill Nelson. Bill was a chief economist at the Bank Policy Institute. Bill previously was a deputy director of the Division of Monetary Affairs at the Federal Reserve Board, where his responsibilities included monetary policy analysis, discount window policy analysis, and financial institution supervision. Bill also worked closely with the BIS working groups in the design of liquidity regulations. Bill has written widely on the Fed’s operating system, and joins us today to discuss it, and the recent turmoil in money markets. Bill, welcome to the show.
Bill Nelson: Thank you. Thanks for having me.
Beckworth: Oh, it’s great to have you on. I’ve participated with you in an event at AEI. We were just talking about corridor systems, and George Selgin’s book,

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Jim Dorn on the History of Monetary Policy in Washington D.C. and its Future

October 2, 2019

David Beckworth: Our guest today is James Dorn. Jim is a vice president for monetary studies at the Cato Institute, and is the director of Cato’s annual Monetary Policy Conference. He has written widely on Federal Reserve policy and monetary reform. He has also edited more than ten books, including The Search for Stable Money, and The Future of Money in the Information Age. Jim joins us today to discuss the history of monetary policy in Washington D.C. over the past four decades, as well as some of his own recent work. Jim, welcome to the show.
Jim Dorn: Thank you, David.
Beckworth: Great to have you on. Now, I kind of cut my teeth on monetary policy reading some of your work in the Cato Journal, and the authors you’ve published there, and your conferences. I remember in grad school coming

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The Challenges of Dollar Dominance

September 6, 2019

Is the US dollar too much of a good thing? Can its success in becoming the main currency of the world also make it a curse for global financial stability? These and other questions about the dollar’s dominance are increasingly being considered by policymakers, academics, and journalists as the reach of the dollar continues to grow. These concerns were also front and center at the Kansas City Federal Reserve Bank’s conference last month in Jackson Hole, Wyoming, an annual gathering of influential voices in central banking.
Concerns over the dollar are not new. In the 1970s, President Richard Nixon’s Treasury secretary, John Connally, once told foreign finance ministers that the dollar is “our currency, but your problem” after they complained about its inordinate sway on their economies.

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The Great Divorce

November 13, 2018

In October 2008, the Federal Reserve (Fed) changed from a “corridor” operating system for setting interest rates to a “floor” system. This poorly timed transition exacerbated the Great Recession and slowed economic recovery for years thereafter. So argues David Beckworth in “The Great Divorce: The Fed’s Move to a Floor System and the Implica­tions for Bank Portfolios.”
Corridor System Versus Floor System

Under the corridor system, there was an upper and lower bound within which the Fed’s target interest rate could move. The upper bound was the rate at which banks could borrow from the Fed (the discount rate), and the lower bound was zero percent. The Fed bought and sold securities through open-market operations to adjust its interest rate target within this corridor. The quantity of

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'Et Tu, John Williams?'

October 8, 2018

The Federal Reserve’s "r-star" has gone full supernova. New York Federal Reserve President John Williams, its key proponent, made clear in a speech late Friday that the neutral interest rate is no longer a guiding star for monetary policy. This means a federal funds rate in the range of what is considered neutral has no special significance as far as policy is concerned…

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More Non-Star Metrics for Monetary Policy

September 26, 2018

In an earlier post and Bridge article, I discussed some ways to use nominal GDP (NGDP) as a cross-check on the FOMC "navigating by stars" of r*, u*, and y*. The motivation for these pieces was Fed Chair Jay Powell’s concerns about the challenge of using these star variables when they seem increasingly in flux…
Continue reading: More Non-Star Metrics for Monetary Policy

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The Fed's Floor System: Sayonara?

September 26, 2018

Are the days of the Fed’s floor system numbered? Last month, I claimed that they could be if President Trump’s fiscal policy continues to spawn rapid increases in the issuance of Treasury bills. His administration is relying heavily on Treasury bills to finance its deficits…
Continue reading: The Fed’s Floor System: Sayonara?

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Adopting a "Keep it Simple, Stupid" Approach to Monetary Policy

September 12, 2018

One of the biggest challenges facing the Federal Reserve in recent years has been the apparent breakdown of the framework it uses to guide monetary policy. This framework is centered on the so-called ‘natural rate’ hypothesis, which is supposed to help the Fed avoid over or underheating the economy. Since 2015, the framework has not been working well and has created much confusion inside the Fed. Fortunately for the Fed, its problems can be solved with a KISS.
The Fed’s Failing Framework
The Fed’s framework is based on the values of the unemployment rate, the real interest rate, and real GDP that are consistent with a healthy economy operating at its full potential. These values are called the natural rate of unemployment, the natural real rate of interest, and the natural rate of output.

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Jay Powell’s Fed and the Right Monetary Policy Rule

August 3, 2018

As a new Fed chair, it remains to be seen where Jay Powell will ultimately take US monetary policy. One area, however, where he is already breaking with his predecessors is his open endorsement of monetary policy rules. This largely overlooked development is remarkable given the Fed’s past aversion to such rules…
Continue reading: Jay Powell’s Fed and the right monetary policy rule
Photo credit: Jacquelyn Martin/AP/Shutterstock

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Closer To OCA Criteria: Eurozone Or Dollarzone?

July 31, 2018

The Eurozone has faced a number of challenges in recent years to its monetary union, which David Beckworth catalogued in a recent article for the National Review. At Seeking Alpha, Beckworth asks a second question: does the United States more closely fit the ideal of an optimal currency area (OCA)? 
Read it here: Closer To OCA Criteria: Eurozone Or Dollarzone?

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Jay Powell’s Fed and the Right Monetary Policy Rule

July 30, 2018

As a new Fed chair, it remains to be seen where Jay Powell will ultimately take U.S. monetary policy. One area, however, where he is already breaking with his predecessors is his open endorsement of monetary policy rules. This largely overlooked development is remarkable given the Fed’s past aversion to such rules.
In his first testimony to Congress, Chair Powell said that the FOMC “routinely consults monetary policy rules” and that he “find(s) these rule prescriptions helpful.” He reiterated this point in his testimony last week. His warm embrace of their use was complemented by the separate publication of benchmark rules in the Fed’s monetary policy reports submitted to Congress and on the Board of Governor’s website.
Continue reading: Jay Powell’s Fed and the right monetary policy rule

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The Future of the Eurozone

July 27, 2018

When does it make sense for countries to form monetary unions like the EU? David Beckworth expands on his National Review article on the topic with a follow-up at Seeking Alpha.
Read it here: The Future of the Eurozone

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The Euro Zone Should Integrate or Separate

July 20, 2018

The Eurozone has faced obstacle after obstacle over the last decade: the financial crisis, the Greek debt crisis, and rising nationalism, to name a few. David Beckworth argues in the National Review that the only ways to overcome the Eurozone’s inherent challenges are to integrate or dissolve.
Read more: The Euro Zone Should Integrate or Separate

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Two Important Things We Learned from the Fed Chair Yesterday

June 14, 2018

As expected, the Federal Reserve raised its target interest rate a quarter of a percentage point on Wednesday. Its target range for short-term interest rates now sits at 1.75to 2 percent. The Fed also signaled that it will probably raise interest rates twice more in 2018 given what it saw as good health in the economy. That would put short-term interest rates at 2.25 to 2.50 percent by the end of the year.
Fed Chair Jay Powell reiterated the optimistic take on the economy during his post-Federal Open Market Committee (FOMC) press conference. He noted that the FOMC’s decision to raise rates is a “sign that the US economy is in great shape” and that “most people who want to find jobs are finding them.”
This optimism was also apparent in the FOMC’s projection that it would raise interest

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Macro Musings 106: Razeen Sally on Protectionism, International Trade, and China

May 14, 2018

Razeen Sally is an associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore and formerly taught at the London School of Economics. He is also the Chairman of the Institute of Policy Studies, the main economic policy think tank in Sri Lanka and a senior advisor to Sri Lanka’s Minister of Finance. Today, he joins the show to discuss the state of international economic affairs and how it specifically relates to Asia. Razeen explains why he believes the U.S. should stay engaged within Asia and also shares his thoughts on China’s demographic problem as well as the effects of the Trump administration’s increased protectionism.

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Macro Musings 105: David Andolfatto on Inflation and the Phillips Curve

May 14, 2018

David is the Vice President of the St. Louis Federal Reserve Bank, and has published widely in the field of monetary economics. He also writes for his blog, MacroMania, where he covers a multitude of economic topics. David joins the show today to discuss the economics behind the Phillips Curve, and to help provide a greater understanding of the debate surrounding it. They also discuss the mystery of low inflation in the United States, the excess money demand problem, and the important role debt plays within international monetary policy.

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