This paper provides empirical evidence on the information in the term structure for longer maturities about both future inflation and the term structure of real interest rates. The evidence indicates that there is substantial information in the longer maturity term structure about future inflation: the slope of the term structure does have a great deal of predictive power for future changes in inflation. On the other hand, at the longer maturities, the term structure of nominal interest rates contains very little information about the term structure of real interest rates. These results are strikingly different from those found for very short-term maturities, six months or less, in previous work. For maturities of six months or less, the term structure contains no information about the future path of inflation, but it does contain a great deal of information about the term structure of real interest rates. The evidence in this paper does indicate that, at longer maturities, the term structure of interest rates can be used to help assess future inflationary pressures: when the slope of the term structure steepens, it is an indication that the inflation rate will rise in the future and when the slope falls, it is an indication that the inflation rate will fall. However, we must still remain cautious about using the evidence presented here to advocate that the Federal Reserve should target on the term structure in conducting monetary policy. A change in Federal Reserve operating procedures which focuses on the term structure may well cause the relationship between the term structure and future inflation to shift, with the result that the term structure no longer remains an accurate guide to the path of future inflation. If this were to occur, Federal Reserve monetary policy could go far astray by focusing on the term structure of interest rates.

This paper argues that although financial consolidation creates some dangers because it is leading to larger institutions who might expose the US financial system to increased systemic risk, these dangers can be handled by vigilant supervision and a government safety net with an appropriate amount of constructive ambiguity. Financial consolidation also opens up opportunities to dramatically reduce the scope of deposit insurance and limit it to narrow bank accounts, thus substantially reducing the moral hazard created by the government safety net. Reducing the scope of deposit insurance, however, does not eliminate the need for a government safety net, and thus there is still a strong need for adequate prudential supervision of the financial system. Moving to a world in which we have larger, nationwide, diversified financial institutions and in which deposit insurance plays a very limited role, should improve the efficiency of the financial system. However, it is no panacea: the job of financial regulators and supervisors will continue to be highly challenging in the future.

This paper conducts empirical tests of the equality of real interest rates across countries. The empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP. The evidence suggests that it is worth studying open economy macroeconomic models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market, or 3) deviations from ex ante relative PPP.

This paper is an application of efficient markets‐rationael xpectations theory to analyze empirically the relationship of money supply growth and short‐term interest rates, a hotly debated issue in the literature. This approach has the advantage over earlier research on this subject in that it imposes a theoretical structure that allows easier interpretation of the empirical results as well as more powerful statistical tests. The empirical results uniformly do not support the proposition that increases in money growth are correlated with declines in short rates.

No abstract provided.

This paper extends previous work on the information in the U.S. term structure at longer maturities to Britain, West Germany, and Switzerland. We find strong evidence that the term structure does have significant ability to forecast changes in inflation, particularly at long maturities. On the other hand, the ability of the term structure to forecast changes in one-year interest rates is somewhat weaker; only at the very longest horizon (five years) is there significant forecasting ability for interest-rate changes.

This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely. The fact that monetary policy is more potent than during normal times provides a rationale for a risk-management approach to counter the contractionary effects from financial crises, in which monetary policy is far less inertial than would otherwise be typical -not only by moving decisively through conventional or nonconventional means to reduce downside risks from the financial disruption, but also in being prepared to quickly take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks.

This paper outlines what inflation targeting involves for emerging market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them.