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 Booth sometimes echoes old and out-of-date information to other sites.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 Fiscal Theory of the Price Level. Update, September 13 2019. This is a preliminary draft of a book on fiscal theory. The fiscal theory needs a book, where everything is in one place, and with the clarity of hindsight. I also want to stress how to use the fiscal theory, not theoretical controversies. I'm posting it as it comes along for anyone who is interested, and in the hope of getting feedback. Warning, it's incomplete, and will be revised many times. But it is still potentially interesting if you want to read about fiscal theory. Relative to February 7, I rewrote the first six chapters, which include a lot of new material.
- Rethinking Production Under Uncertainty. November 2019. This is a big update of a paper I put aside long ago in 1993. Conventional production technologies don't allow producers to transform output across states of nature. I investigate a specification of production technology that allows such choice, and therefore gives a purely production-based asset pricing model, in which the discount factor equals productivity raised to a power.
- A Fiscal Theory of Monetary Policy with Partially-Repaid Long-Term Debt. December 2019. Fiscal theory of monetary policy means interest rate targets, sticky prices, and fiscal theory. This paper adds long term debt and the crucial novelty: a surplus process by which the government borrows now and promises future surpluses to repay the debt, yet fiscal policy is active. The model generates reasonable response functions to fiscal and monetary policy shocks, and solves a long-standing problem in fiscal theory models. This and the next two papers are companions, this one emphasizing theory, the next two data.
- The Fiscal Roots of Inflation. Update, December 2019. I apply an asset pricing style return variance decomposition to the government debt valuation equation. Unexpected inflation comes basically all from discount rates: a higher real interest rate devalues government debt via inflation. Present values change by more than inflation, and long term bonds soak up a lot of fiscal shocks, smoothing inflation forward. I also decompose recession related shocks, monetary and fiscal policy shocks, and the value of debt. zip file containing programs and data.
- The Value of Government Debt July 2019. Here I apply an asset pricing style price/dividend variance decomposition to the government debt valuation equation, to break the debt / GDP ratio into expected future surpluses and expected growth-adjusted discount rates. Variation in the value of debt / GDP is about half future surpluses and half discount rates. Growth variation does not show up.
- Michelson-Morley, Fisher, and Occam: The Radical Implications of Stable Inflation at the Zero Bound. 2018. NBER Macroeconomics Annual 32 (1) 113-226, Jonathan A. Parker and Michael Woodford Eds. The fact that inflation is quiet and stable at zero rates cleanly invalidates the standard old-Keynesian model, which predicts a deflation spiral, and almost as cleanly invalidates new-Keynesian sunspots. New Keynesian price stickiness plus fiscal theory selection works well, and solves the puzzles of new-Keynesian models with selection by post-bound active policy. Stable inflation suggests a higher rate will raise inflation. That conclusion is hard to escape, even temporarily. The fiscal theory with long term debt does it. Even that does not rescue traditional views of monetary policy. A shortish nontechnical summary. Data and Programs. Last manuscript. Published version (pdf) at the University of Chicago Press website. Full text html of the published version.
- The Fama Portfolio 2017, University of Chicago Press. Edited with Toby Moskowitz. Collection of Gene Fama papers, with introductions by myself, Toby, Ken French, Bill Schwert, René Stulz, Cliff Asness, John Liew, Ray Ball, Dennis Carlton, Cam Harvey, Lan Liu, Amit Seru and Amir Sufi. The introductions explain why the papers are so important and how we think about the issues today. My essays are here, other essays may be on other authors' webpages. For everything else you'll have to buy the book or e book. My essays (most joint with Toby): Preface; Efficient Markets and Empirical Finance; Luck vs. Skill; Risk and Return; Return Forecasts and Time Varying Risk Premiums; Our Colleague.
- Stepping on a Rake: the Fiscal Theory of Monetary Policy" January 2018. European Economic Review 101, 354-375. The fiscal theory of the price level can describe monetary policy: interest rate targets, quantitative easing, and forward guidance. With long term debt, a higher interest rate can produce temporarily lower inflation. The paper starts with a completely frictionless environment, and then replicates Chris Sims's "stepping on a rake" paper, which has the latter result along with elaborations that smooth out the impulse-response functions. I boil Sims down to the central ingredient,long term debt. The replication is useful if you want to know how Sims derived his model or solved it; also useful as a guide to solving continuous-time sticky-price models with jumps. Matlab program archive
- The New-Keynesian Liquidity Trap December 2017. Journal of Monetary Economics 92, 47-63. First link includes the online appendix. matlab program. In standard solutions, new-Keynesian models produce a deep recession with deflation at the zero bound. 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, and news has larger effects for events further in the future. These features are all artifacts of equilibrium selection. For the same interest-rate policy, equilibria that limit a downward jump of inflation on news of the trap, for the same interest rate policy, reverse all these predictions. They predict mild inflation, little output variation, and negative multipliers during the liquidity trap. Their predictions approach the frictionless model smoothly, and promises in the far-off future have less effect today. A big deflation means people expect the government to raise taxes or cut spending a lot to pay off a windfall to bondholders. Thus, fiscal considerations suggest the equilibria with limited jumps and effects.
- Macro-Finance 2017. Review of Finance 21(3): 945-985. Links: Publisher (doi) , Last manuscript. This is a review paper. I survey many current frameworks including habits, 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: the market's ability to bear risk varies over time, with business cycles. I speculate with some simple models that time-varying risk premiums can produce a theory of risk-averse recessions, produced by varying risk aversion and precautionary saving, rather than Keynesian flow constraints or new-Keynesian intertemporal substitution. The July 2016 manuscript contains a long section with thoughts on how to make a macro model based on time varying risk premiums, that got cut from the above final version. (This is the "manuscript" referenced in the paper.) The Data and programs (zip, matlab). The slides for the talk. A very nice post on the Review of Finance Blog summarizing the paper, by Alex Edmans, the editor. Typo: equation (17) is wrong. The same equation, (3) is right.
- 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.
- 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.
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.
- The trade war to end all trade wars will end in economic carnage. July 31 2018. TheHill.com. Blog version
- The Tax-And-Spend Health-Care Solution Wall Street Journal July 30 2018. Local Copy. Tax and spend is better than cross subsidies. This is the key to deregulation.
- It's the end of the beginning for the economy, not the other way around. May 23 2018. TheHill.com. Blog version.
- A debt crisis is on the horizon. Washington Post, March 27 2018. Debt and deficits are a danger. Rising interest rates could spark big trouble quickly. Reforming entitlements is the answer, and sooner better than later. Written with Mike Boskin, John Cogan, George Shultz, and John Taylor. Local copy (pdf).
- Stock Buybacks Are Proof of Tax Reform's Success Wall Street Journal, March 6 2016. Local Copy.
- Trump's tariffs will hurt trade, and trade is a good thing -- really Fox News March 5 2018. Local copy
- Law and the Regulatory State 2017. In Thomas W. Gilligan, Ed., American Exceptionalism in a New Era, Hoover Institution Press, p. 57-70. Exceptionalism interpreted as the rule of law guaranteeing economic freedom. In peril, as always.
- Eight Heresies of Monetary Policy. November 2017. 1) The Fed has not been holding interest rates down. 2) QE did basically nothing. 3) The Fed is not stoking asset price bubbles. 4) The Fed has little control over real rates 5) The economy is stable 6) Interest rates only temporarily lower inflation. 7) The Phillips curve is dead 8) Long-term fiscal policy, not Fed mistakes, pose the greatest danger to inflation. Slides.
- Tax Consumption Through A VAT Wall Street Journal September 5 2017. Local Copy.
- Climate Change isn't the End of the World Wall Street Journal July 31 2017. With David R. Henderson. Local Copy.
- Here's what healthcare looks like in a perfect world. Feb 10 2017 The Hill.com
- Don't Believe the Economic Pessimists Wall Street Journal Nov 6 2016 More on growth, a reaction to many voices that say growth is impossible, just give up. Local pdf
- Testimony to House Budget Committee, Sept 14 2016. Economic growth is the big problem; bi-partisan policies to fix it rather than keep yelling the same talking points louder. On debt, the small probability of a debt crisis is the big problem, and how to avoid it. Oral remarks much shorter, sweeter (I get 5 minutes) but less documented.
- The Clinton Plan's Growth Deficit. Wall Street Journal, August 12 2016. Comments on the Hillary Clinton economic plan. See also the related blog post.
- Trade and Immigration July 2016. An uncompromising defense of free trade and immigration. For George P. Shultz, ed., Blueprint for America Hoover Institution Press, p. 109-125.
- A Blueprint for Effective Financial Reform July 2016. Equity-financed banking. How it works, and substitutes for the Dodd-Frank illusion that regulators can keep us safe. This is the paper behind the talk, next item. In George P. Shultz, ed., Blueprint for America Hoover Institution Press, p. 71 - 84.
- Equity-financed banking and a run-free financial system Talk given at the Minneapolis Federal Reserve's "Ending too big to fail" symposium, May 16 2016.
- 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. Programs and data for the graph. (zip file)
- 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.
- Here's what Genuine Tax Reform Looks Like Wall Street Journal Dec 22 2015. Separate the tax code, the subsidy code, the transfer code, and the overall level of taxation. Local copy
- Economic Growth. 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. Published in John Norton Moore, ed., The Presidential Debates Carolina Academic Press 2016. p. 65-90.
- 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.)
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
- Lessons of the long quiet zero bound May 2018. Comments for the session "Monetary Policy, Conventional and Unconventional" at the Spring 2018 Nobel Symposium on Money and Banking. A lightning summary of recent papers including "Fiscal theory of monetary policy" "Michelson-Morley" and "New Keynesian Liquidity Trap." Lots of pictures. Fun. Slides. Video of the presentation. Link to the whole conference including video and slides for all the presentations.
- Inflating away our troubles? April 22 2017 Comments on "Inflating away the public debt? An empirical assessment" by Jens Hilscher, Alon Aviv and Ricardo Reis. A little inflation will not likely help our debt problems. An interest rate rise could make matters much worse, and precipitate a debt crisis, which would cause a lot of inflation. Slides
- Comments on "A Behavioral New-Keynesian Model" by Xavier Gabaix. Comments presented at the October 21 2016 NBER EFG meeting. The model is really important. It is an alternative to active Taylor rules in NK models, solving zero bound and other problems. But it puts a lot of irrationality deeply at the heart of monetary economics. Slides
- Volume and information. Comments on "Random Risk Aversion and Liquidity: a Model of Asset Pricing and Trade Volumes" by Fernando Alvarez and Andy Atkeson. Comments presented at the Conference in Honor of Robert E. Lucas Jr., Becker-Friedman Institute, October 7 2016. Andy and Fernando have a nice paper, which I pretty much ignored and summarized some thoughts on the big puzzle of volume instead.
- Michelson-Morley, Occam and Fisher: The radical implications of stable inflation at the zero bound Slides for talk at the European Financial Association, August 2016. This became the paper listed above. It's an evolution of the similar slides for my talk given at the Columbia-New York Fed conference honoring Michael Woodford May 18-19 2016. The ZLB is a deeply revealing moment for monetary economics, like Michelson-Morley's famous experiment. Nothing happened. Many theories say big things should have happened, and those theories are wrong. (Well, unless you add epicycles, ether drag, or other ugly complications. Hence Occam's razor.) In the new version I incorporate Sims' insight for how to get a temporary negative inflation out of a rate rise. In the same vein slides for a 1.5 hour MBA class covering all of monetary economics from Friedman, Sargent-Wallace, Taylor, Woodford, and FTPL.
- Comments on 'the Fundamental Structure of the International Monetary System' by Pierre-Olivier Gourinchas. April 2017. In Rules for International Monetary Stability edited by Michael D. Bordo and John B. Taylor, p. 186-195, Stanford: Hoover Institution Press. (The link includes the final paper and my comment.) The comments, presented at the conference, "International Monetary Stability: Past, Present and Future," Hoover Institution, May 5 2016, refer also to the original paper 'Global Imbalances and Currency Wars at the ZLB,' by Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas. The papers model "Global imbalances," "savings gluts," "safe asset shortages," and so forth, with a dramatic "tipping point" at the zero bound. At the bound "inability to produce safe assets" in one country spills over to output gaps at another one. I outline a different world view and contrast the two worlds.
- Comments on "How Can Central Banks Deliver Credible Commitment and be 'Emergency Institutions'" By Paul Tucker. In John H. Cochrane and John B. Taylor, Eds., Central Bank Governance and Oversight Reform, Hoover Institution Press May 2016, p. 31-36. (Chapter pdfs available here) Comments presented at the Hoover conference by the same name, May 21, 2015. Tucker's paper here. Tucker wisely advocates rules for mop ups, lender of last resort, bailouts, etc. I agree, but wouldn't lots more equity so you don't have to mop up be simpler?
- 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 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.
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