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Brookings Papers on Economic Activity, Fall 2018 Edition

The Brookings Papers on Economic Activity (BPEA) is an academic journal published twice a year by the Economic Studies program at Brookings. Each edition of the journal includes five or six new papers on macroeconomic topics currently impacting public policy.

Below you’ll find five new papers submitted to the Fall 2018 journal and presented at Brookings on September 13-14. The papers include a look at the real effects of the financial crisis 10 years after its worst moments, how the Federal Reserve got from the gold standard to its 2 percent inflation target and what should trigger a new framework for monetary policy, and much more.

Order the published version of the journal here. Sign up here to learn more about subscribing to the journal to read the final papers. Visit the BPEA search page or the best of BPEA to browse research presented at past conferences from 1970 to present.

FILE PHOTO: A foreclosed home is seen in Stockton, California, U.S., May 13, 2008.   REUTERS/Robert Galbraith/File Photo - RC1F7B603240

In his new BPEA paper, former Federal Reserve Chair Ben Bernanke examines why many forecasters failed to anticipate the severity of the Great Recession and what really drove the economy into such a tailspin. Bernanke’s research, which is rooted in quantitative analysis of how the 2007-2009 financial crisis affected the economy, argues that the housing bust, while significantly damaging, can’t on its own explain why the Great Recession was so bad.

FILE PHOTO: A sheet of United States one dollar bills is seen on a light table during production at the Bureau of Engraving and Printing in Washington November 14, 2014.   REUTERS/Gary Cameron/File Photo - RC17FBCFA960

Economists refer to episodes of interest rates approaching zero as the effective lower bound or zero lower bound. Previous research in the Brookings Papers on Economic Research showed that rates could near the zero lower bound as much as 40 percent of the time—twice as often as predicted by others. In a symposium for the Fall 2018 edition of BPEA, Kristin Forbes, with the MIT-Sloan School, James Hamilton, University of California, San Diego, Eric Swanson, University of California Irvine, and Brookings Distinguished Fellow-in-Residence Janet Yellen discuss how policymakers should act during episodes where interest rates near the effective lower bound and what it could mean for central bankers’ ability to set monetary policy.

Federal Reserve Chairman Jerome Powell speaks on a television as traders work on the floor of the New York Stock Exchange in New York, U.S., February 27, 2018.  REUTERS/Lucas Jackson - RC1371196FE0

Boston Federal Reserve Bank economists Jeff Fuhrer, Giovanni Olivei, Geoffrey Tootell, and Boston Fed President Eric Rosengren ask when and how the Fed should re-evaluate its monetary policy framework. “The question,” the authors write, “is not whether the framework can or should change, but what are the appropriate triggers for such changes and what process might best aid the central bank in considering how to change it.”

A screen displays the final numbers for the Dow Jones Industrial Average on the floor of the New York Stock Exchange, August 10, 2011. Fear returned to Wall Street on Wednesday, sending the S&P 500 to another 4 percent decline, triggered by worries that Europe's debt crisis could engulf French banks and spill onto the U.S. financial sector.   REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS IMAGES OF THE DAY) - GM1E78B0FHW01

Every year, the Federal Reserve and other government agencies, as well as various international organizations, produce regular projections of potential outputthat is, a “normal” or long-run level of economic activity. Since the Great Recession, these projections have become less and less optimistic, with many now interpreting the data to suggest the U.S. is seeing a permanent decline in economic output. A new paper from Olivier Coibion of the University of Texas at Austin and Yuriy Gorodnichenko and Mauricio Ulate of the University of California at Berkeley suggests these projections—and resulting assumptions about the future path of the economy—are subject to mismeasurement.

FILE PHOTO: A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt, December 8, 2011.   REUTERS/Alex Domanski/File Photo - RC1A5F89B620

In a new BPEA article, the European Central Bank’s Philipp Hartmann and Frank Smets provide a comprehensive view of the ECB’s monetary policy over these two decades. The authors provide a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, and describe the monetary policy decisions from the ECB’s perspective and against the background of its evolving monetary policy strategy.

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