Journal Article A New Assessment of Openness and Inflation: Reply Get access David Romer David Romer University of California, Berkeley Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 113, Issue 2, May 1998, Pages 649–652, https://doi.org/10.1162/003355398555612 Published: 01 May 1998

Because unanticipated monetary expansion leads to real exchange rate depreciation, and because the harms of real depreciation are greater in more open economies, the benefits of unanticipated expansion are decreasing in the degree of openness. Models in which the absence of precommitment in monetary policy leads to excessive inflation therefore predict lower average inflation in more open economies. This paper tests this prediction using cross-country data. The data show a strong and robust negative link between openness and inflation.

Traditional estimates of prewar GNP exaggerate the size of cycles because they are based on the assumption that GNP moves approximately one for one with commodity output valued in producer prices. This paper derives new estimates of GNP for 1869-1908 using an estimate of the actual relationship between GNP and commodity output. This estimated relationship is allowed to be time-varying and is derived from a regression covering the periods 1909-28 and 1947-85. The new estimates of GNP indicate that there has been much less stabilization between the prewar and postwar eras than is conventionally believed.

This paper uses simple summary statistics to analyze the volatility, persistence, and comovement of 38 annual individual production series for the period 1889–1984. It seeks to identify the size, source, and correlation of fluctuations in the production of specific commodities within various sample periods and to analyze possible changes in these characteristics over time. The paper also discusses the implications of the behavior of individual production series for the behavior of the aggregate economy within the prewar, interwar, and postwar eras.

This paper argues that the collapse of stock prices in October 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods. That the Great Crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters. That this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929, while spending on perishable goods rose slightly. This effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era. "Uncertainty is worse than knowing the truth, no matter how bad"

This paper shows that the existing estimates of prewar gross national product exaggerate the size of cyclical fluctuations. The source of the exaggeration is that the original Kuznets estimates are based on the assumption that GNP moves one-for-one with commodity output valued at producer prices. New estimates of GNP for 1869-1918 are derived using the estimated aggregate relationship between GNP and commodity output for the interwar and postwar eras. The new estimates of GNP indicate that the business cycle is only slightly more severe in the pre-Worid War I era than in the post-World War II era.

The narrative approach to macroeconomic identification uses qualitative sources, such as newspapers or government records, to provide information that can help establish causal relationships. This paper discusses the requirements for rigorous narrative analysis using fresh research on the impact of monetary policy as the focal application. We read the historical Minutes and Transcripts of Federal Reserve policymaking meetings to identify significant contractionary and expansionary changes in monetary policy not taken in response to current or prospective developments in real activity for the period 1946 to 2016. We find that such monetary shocks have large and significant effects on unemployment, output, and inflation in the expected directions. Analysis of available policy records suggests that a contractionary monetary shock likely occurred in 2022. Based on the empirical estimates of the effect of previous shocks, one would expect substantial negative impacts on real GDP and inflation in 2023 and 2024.

This paper examines the aftermath of postwar financial crises in advanced countries. We construct a new semiannual series on financial distress in 24 OECD countries for the period 1967–2012. The series is based on assessments of the health of countries' financial systems from a consistent, real-time narrative source, and classifies financial distress on a relatively fine scale. We find that the average decline in output following a financial crisis is statistically significant and persistent, but only moderate in size. More important, we find that the average decline is sensitive to the specification and sample, and that the aftermath of crises is highly variable across major episodes. A simple forecasting exercise suggests that one important driver of the variation is the severity and persistence of financial distress itself. At the same time, we find little evidence of nonlinearities in the relationship between financial distress and the aftermaths of crises.