About me and this page
Welcome to my web page. Here you can find just about anything I've ever written.
The Contact information page has all the ways to contact me, media contact information, and few more pictures in different sizes.
The Research link will take you to all my academic writing, including published books, papers, working papers and comments. It includes comments and talks given at academic conferences. It also has information about my textbook, Asset Pricing
The News, Op-eds link takes you includes op-eds, blog posts, links to media coverage, slides and videos of talks, and other items of interest to the average non-academic.
I usually post slides of any talk I've given, so if there was some delicious graph you saw at a talk, you're likely to find it in the Research (for academic talks) or News (for other talks) links.
In December 2011 I started a blog with news and opeds and commentary.
Teaching takes you to class web pages. Students: these are the right web pages. Booth sometimes echoes old and out-of-date information to other sites. Visitors: you are welcome to use any of my materials that you find useful, so long as you cite their source. All: yes, the problem set answer links don't lead anywhere when I'm not teaching.
Data and Programs takes you to a webpage with data and programs for older papers. Starting 2011, I'm posting links to data and programs next to the paper on these pages, but I haven't yet cleaned up the old papers to that method.
If you're a sailplane pilot looking for Soaring writing, go to the soaring link. If you're an economist but flying gliders sounds a lot more interesting than whatever else brought you here, go ahead and take a look.
I'm a proud father and husband of a creative family. Check out the Family web page, with art, comics, animation, music, plus the famous Hippo pages. Warning: If you click this link you may not be back for an hour or two. My wife, Elizabeth Fama is a young adult book author, elizabethfama.com is her web page and blog, her latest books are Monstrous Beauty and Plus One. My daugher Sally's paintings and blog are worth a detour.
This is (July 2011) a big web site redesign. Please let me know about inevitable bugs, broken links, etc.
Academic articles and working papers
- The Habit Habit. March 2016. This is a talk I gave at the 2016 "Finance Down Under" Conference at the University of Melbourne. I start with a quick review of the habit model. Then, I survey of many current parallel approaches including long run risks, idiosyncratic risks, heterogenous preferences, rare disasters, probability mistakes, and debt or institutional finance. I stress how all these approaches produce quite similar results and mechanisms. I speculate with some simple models that time-varying risk premiums as captured by the habit model can produce a theory of risk-averse recessions, produced by varying risk aversion and precautionary saving, not Keynesian flow constraints or new Keynesian intertemporal substitution. The slides for the talk.
- The Fragile Benefits of Endowment Destruction. November 2015. Journal of Political Economy 123(5) 1214-1226. With John Y. Campbell. (JSTOR / JPE Link.) A rejoinder to Ljungqvist and Uhlig "Comment on the Campbell-Cochrane Habit Model" (formerly titled "Optimal Endowment Destruction under Campbell-Cochrane Habit Formation"). The benefits of endowment destruction depend sensitively on how you discretize the model. Lesson: It's better to use the the continuous time version and make sure discretizations make sense. There is a nice lesson on how to extend diffusion models to jumps too. Computer program.
- Do Higher Interest Rates Raise or Lower Inflation? October 16 2015. The standard new-Keynesian model accounts well for the fact that inflation has been stable at a zero interest rate peg. However, If the Fed raises nominal interest rates, the same model model predicts that inflation will smoothly rise, both in the short run and long run. This paper presents a series of failed attempts to escape this prediction. Sticky prices, money, backward-looking Phillips curves, alternative equilibrium selection rules, and active Taylor rules do not convincingly overturn the result. The evidence for lower inflation is weak. Perhaps both theory and data are trying to tell us that, when conditions including adequate fiscal-monetary coordination operate, pegs can be stable and inflation responds positively to nominal interest rate increases. Programs (zip file, matlab.)
- A response to Sims (2013) January 2015. Chris Sims' (2013) "Paper Money" seems to include a criticism of my "Determinacy and Identification with Taylor Rules". In fact, there is essentially no fundamental disagreement between the two papers.
- A New Structure for U.S. Federal Debt November 2015 In David Wessel, Ed., The $13 Trillion Question: Managing the U.S. Government's Debt, pp. 91-146. Washington DC: Brookings Institution Press. Last manuscript. I propose a restructuring of U. S. Federal debt. All debt should be perpetual, paying coupons forever with no principal payment. The debt should be composed of 1) Fixed-value, floating-rate, electronically transferable debt. Such debt looks like a money-market fund, or reserves at the Fed, to an investor. 2) Nominal perpetuities: This debt pays a coupon of $1 per bond, forever. 3) Indexed perpetuities: This debt pays a coupon of $1 times the current consumer price index (CPI). 4) All debt should be free of income, estate, capital gains, and other taxes. 5) long term debt should have explicitly variable coupons. 6) Swaps. The Treasury should adjust maturity structure, interest rate and inflation exposure of the Federal budget by transacting in simple swaps among these securities.
- Monetary Policy with Interest on Reserves Journal of Economic Dynamics & Control 49 (2014), 74–108 ( ScienceDirect link to published version, html and pdf) I analyze monetary policy with interest on reserves and a large balance sheet. I argue for the desirability of this regime on financial stability grounds. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy -- buying and selling government debt with no effect on surpluses -- can peg the nominal rate, and determine expected inflation. With sticky prices, monetary policy can also affect real interest rates and output, though not with the usual signs in this model. Figures 2 and 3 are the best part -- the effects of monetary policy with and without fiscal coordination. I address theoretical controversies, and how the fiscal backing of monetary policy was important for the 1980s disinflation. A concluding section reviews the role of central banks. Matlab program.
- Toward a run-free financial system. November 4 2014. In Martin Neil Baily, John B. Taylor, eds., Across the Great Divide: New Perspectives on the Financial Crisis, Hoover Press. This is an essay about what I think we should do in place of current financial regulation. We had a run, so get rid of run-prone liabilities. Technology and financial innovation means we can overcome the standard objections to "narrow banking." Some fun ideas include a tax on debt rather than capital ratios, the Fed and Treasury should issue reserves to everyone and take over short-term debt markets just as they took over the banknote market in the 19th century, and downstream fallible vechicles can tranche up bank equity.
- Challenges for Cost-Benefit Analysis of Financial Regulation. Journal of Legal Studies 43 S63-S105 (November 2014). Is cost benefit analysis a good idea for financial regulation? I survey the nature of costs and benefits of financial regulation and conclude that the legal process of current health, safety and environmental regulation can't be simply extended to financial regulation. I opine about how a successful cost-benefit process might work. My costs and benefits expanded to a rather critical survey of current financial regulation. It's based on a presentation I gave at a conference on this topic at the University of Chicago law school Fall 2013, with many interesting papers. JSTOR link with HTML and nicer pdf. The JLS issue with all conference papers.
- A mean-variance benchmark for intertemporal portfolio theory Journal of Finance, 69: 1–49. doi: 10.1111/jofi.12099 (February 2014) (link to JF) (Manuscript) Applies good old fashioned mean-variance portfolio analysis to the entire stream of dividends rather than to one-period returns. Long-Run Mean-Variance Analysis in a Diffusion Environment is a set of notes, detailing all the trouble you get in to if you try to apply long-run ideas to the standard iid lognormal environment, and also discusses shifting bliss points a bit.
- The New-Keynesian Liquidity Trap Revised again, Sept 2014. In standard solutions, the new-Keynesian model produces a deep recession with deflation in a liquidity trap. Useless government spending, technical regress, and capital destruction have large positive multipliers. The recession, deflation and policy paradoxes are larger when prices are less sticky. I show that these features are all artifacts of equilibrium selection. For the same interest-rate policy, different choices of equilibria overturn all these results. A set of "local-to-frictionless" equilibria, for the same interest rate policy, predict mild inflation, no output reduction and negative multipliers during the liquidity trap, and its predictions approach the frictionless model smoothly. Skip to the pictures if you're busy. A new last paragraph defends the basic NK model. The current slides
- Finance: Function Matters, not Size May 2013 Journal of Economic Perspectives 27, 29–50 JEP link (Previous title "Is Finance Too big?" December 2012.) Is finance "too big?" Is this the right question?
- A Brief Parable of Overdifferencing January 2012. This is a short note, showing how money demand estimation works very well in levels or long (4 year) differences, but not when you first-difference the data. It shows why we often want to run OLS with corrected standard errors rather than GLS or ML, and it cautions against the massive differencing, fixed effects and controls used in micro data. It's from a PhD class, but I thought the reminder worth a little standalone note. .
Op-eds, blog posts, essays, articles, and other digestible writing
Note: I started a blog in January 2012, and don't echo the blog posts here.
- Ending America's Slow-Growth Tailspin May 3 2016 WSJ oped. I try to quantify how much growth we could get out of better policy by regressing GDP per capita on the World bank's ease of doing business measure. The answer: a lot. Local pdf
- How and Why we Care About Inequality Nov. 2015. in Inequality and Economic Policy: Essays in Memory of Gary Becker, Tom Church, John B. Taylor, and Christopher Miller Eds., Stanford, CA: Hoover Press.
- Economic Growth (html) ( pdf version here ). October 2015. Essay. An overview of what a growth-oriented policy program might look like. Regulation, finance, health, energy and environment, taxes, debt social security and medicare, social programs, labor law, immigration, education, and more. Written for the Focusing the presidential debates initiative.
- After the ACA: Freeing the market for health care Sept 2015 In The Future of Healthcare Reform in the United States Edited by Anup Malani and Michael H. Schill, p 161-201, University of Chicago Press. An essay on health care, first presented at the conference, The Future of Health Care Reform in the United States, at the University of Chicago Law School. Most of the policy discussion is focused on health insurance. But the health care market is dysfuctional, and needs to be fixed as well. Where are the Southwest Airlines, Walmart and Apple of health care, bringing cost saving, efficiency, and innovation? I argue that we need a big freeing up of health care markets. I also focus more than usual on supply restrictions. It doesn't do much good for people to pay with their own money if suppliers cannot respond to that demand. Last manuscript in case of copyright problems with the published version above.
- The Fed Needn't rush to 'Normalize' Wall Street Journal September 16 2015. Zero rates and zero inflation are pretty good. local pdf
- Greece's Ills Require a Banking Fix. Wall Street Journal, Aug 4 2015. A currency union need open banks not banks stuffed with dodgy sovereign debts. With Andy Atkeson. local pdf.
- The Rule of Law in the Regulatory State June 2015. An essay for the Hoover Institution Magna Carta conference. The regulatory agencies are now the threat to rule of law and your freedom to dissent and support unpopular candidates and causes. Excerpt published as The New Tyranny: How the Regulatory State Threatens Your Freedom in The Insider Fall 2015 pp. 5-13. (local copy.)
- An Autopsy for the Keynesians December 22 2014. Wall Street Journal Op-Ed. A bit of a response to all the opeds and bloggers claiming that ISLM explains everything and is taking over in the tide of ideas
- What the Inequality warriors really want. Wall Street Journal, November 19 2014. A review of the arguments for punitive 1% taxes.
- Who's Afraid of a Little Deflation Wall Street Journal, November 14 2014. Fears of "tipping" into deflation are overblown. I poke a little fun at sticky wages, Fed headroom, deflation-induced defaults and the long-predicted Keynesian deflationary spiral that never seems to happen, and the doom and gloom language from the ECB, IMF and other worriers who just happen to (of course) want to spend trillions to fix this latest "biggest economic problem."
- A few things the Fed has done right, Wall Street Journal August 21, 2014.
- Ideas for Renewing American Prosperity July 4 2014 Wall Street Journal. Local copy. Limit Government and Restore the Rule of Law.
- The Failure of Macroeconomics June 8 2014 Wall Street Journal. local copy. A review of alternative theories of slow growth.
- Interview, in the Richmond Fed "Econ Focus," December 2013. Shorter pdf (print) version here and longer web version here. Local pdf. A wide ranging interview: Dodd-Frank, financial regulation, monetary policy, fiscal theory, recessions, inequality, and who are my heroes.
- What to do when Obamacare Unravels Dec 26 2013 Wall Street Journal . A free-market manifesto with emphaasis on freeing the supply of health care, like "After the ACA." local pdf
- Collection of blog posts on 2013 Nobel Prizes in Economics.
- The Work Behind the Prize. The best short summary of Gene Fama's Nobel, presented at the University of Chicago Syposium Nov 4 2013. Blog post with Video. Here is a Spanish translation courtesy of Pedro Cervera. Spanish Translation of the Lars Hansen Nobel Prize post
- Gene Fama's Nobel Prize. October 2013 I attempt to explain some of his most important work at length.
- The danger of an all-powerful Federal Reserve. August 26 2013 Wall Street Journal. Macro-prudential policy is a license to discretionary financial dirigisme. Clear lessons of monetary policy warn us not to go down this path.
- Financial Reform in 12 Minutes. October 2013 A short paper on where we are. Dodd Frank and Resolution won't work. Regulate run prone liabilities not assets. A regulatory tax on debt will work better than arguing about a red line capital ratio.
- Think government is intrusive now? Wait until E-Verify kicks in. August 1 2013 Wall Street Journal. Congress wants every person in the country to get the Federal Government's approval before he or she can get a job. They must be kidding. See chapter 1 of Capitalism and Freedom
- Stopping Bank Crises Before They Start June 24 2013 Wall Street Journal. Don't try to regulate the riskiness of bank assets, while keeping in place government guarantees. Instead, don't let banks issue run-prone liabilities.
- America Needs an Alternative Maximum Tax April 15 2013 Wall Street Journal.
- The interest rate paradox. April 9 2013 Slides for a talk at Grant's spring conference. I haven't written up the talk yet, but if you were there and want the pictures here they are.
- Treasury needs a better long game March 4 2013 Wall Street Journal. Local pdf. (Better:) Blog post with a few cuts restored and some notes. If the Fed wants to raise rates to 5%, it will raise the deficit by $900 billion. Will Congress let it do that? Fiscal policy limits monetary policy in a time of large debt. A much longer maturity structure would help.
- Running on empty (pdf) (link to WSJ (html)) March 2 2013 Review of "The Banker's new Clothes" by Anat Admati and Martin Hellwig. Banks should issue a lot more equity, a lot less debt, and a heck of a lot less nonsense.
European debt crisis
Current economic situation and policy
Financial crisis, Financial rgulation
Monetary policy; inflation, deficits, fiscal theory
General economics, philosophical debates
Academic Talks and Comments
- The fiscal theory of the price level and monetary policy: An agenda April 1, 2016. Slides for a talk at the Next Steps for the Fiscal Theory of the Price Level conference at the Becker-Friedman Institute, April 1 2016. The Fiscal Theory is that the real value of nominal debt equals the present value of primary surpluses. The agenda is making this fact come alive in the analysis of history, of data, of policy, and of better monetary and fiscal regimes. To that end, I argue we've paid to much attention to surpluses, and not enough to discount rates or to debt and monetary policy. I show how we need discount rates to understand the cyclical variation of inflation, and how monetary policy is quite strong in the fiscal theory, by the ability to control nominal interest rates and thus expected inflation.
- Comments on Bauer and Hamilton. Nov 5 2015. Comments on Robust Bond Risk Premia by Michael Bauer and Jim Hamilton, at the 5th Conference on Fixed Income Markets, San Francisco Federal Reserve, Nov 5 2015. I look at the evidence whether macro variables help to forecast bond returns. It turns out a trend does even better, pushing the R2 up to 62 percent! That finding suggests that specification issues rather than distribution theory are the central problems. I don't find that the Bauer-Hamilton effect size distortion is big. I document measurement errors in the data, which are a good target for econometric help. I opine we need to spend less attention on one asset at at time forecasting and more attention on the factor structure of expected returns across assets, and how that structure lines up with covariances of returns with shocks. There is also a little example of perfect non-spanning in a term structure model; bond yields have an exact one factor model, but a non-spanned factor drives expected returns. Programs and data (zip)
- Comments on "How Can Central Banks Deliver Credible Commitment and be 'Emergency Institutions'" By Paul Tucker Comments presented at the Hoover conference "Central Bank Governance And Oversight Reform: A Policy Conference" May 21, 2015. Tucker's paper here
- Comments on Gary Hansen and Lee Ohanian, "Neoclassical Models of Aggregate Economies" at the Conference on the Handbook of Macroeconomics, Volume 2, Hoover Institution, April 11 2015.
- Comments on Gauti Eggertsson and Neil Mehrotra, "A Model of Secular Stagnation," slides presented at the NBER EFG meeting, July 2014.
- Comments on Aytek Malkhozov, Philippe Mueller, Andrea Vedolin, and Gyuri Venter, "Mortgage Risk and the Yield Curve," slides presented at the NBER AP meeting, July 2014.
More talks and comments in Research talks and comments. ...
News, TV, Radio, other media
- Stelldichein mit dem «Muffel» May 2014 Interview in Neue Züricher Zeitung, on occasion of receiving an honorary degree from the University of St. Gallen. In german, but google translate does a decent job.
- Education and MOOCs. Interview with Russ Roberts on EconTalk podcast. March 31 2014
- The future of global finance. Video interview with Jeff Garten at Yale SOM, February 2014, broadly covering financial markets and regulation. Part of a series by the same name.
- The debt dialogues Podcast interview on free market health care with Don Watkins at the Ayn Rand Institute, March 25 2014.
- Debt and growth video All the world's troubles in 10 minutes. Posted 4/14/2013 but the event was March 2012.
- "Chicago tonight" interview on the fiscal cliff. Jan 2 2013 Video
- EconTalk podcast with Russ Roberts, on "After the ACA" November 19 2012
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