Money Still Matters AEI Panel March 22, 2013 David Beckworth, Western Kentucky University

Money Lessons Learned Traditional View of Money too Narrow o Retail Money Assets Cash, checking accounts, saving and time deposits, money market accounts o Institutional Money Assets Treasury bills, MBS, commercial paper, repos

Money Supply

Money Demand

Long-Term Interest Rates

Recap Supply of Safe Assets Decreased Demand for Safe Assets Increased Safe Asset Shortage Transaction Asset or Money Shortage Shortfall of Total Dollar Spending

Role for Fed Policy Return Total Dollar Spending to Pre-crisis Growth Path o Demand for financial intermediation will increase o Private safe asset production will increase Don’t Target Money Supply o Even though money still matters… o Stable NGDP growth implies stable monetary conditions

Role for Fed Policy

Vector Autoregression 1968:Q4-2012:Q4 Quarters After Positive Shock to Expected NGDP Growth Rate