Ray C. Fair Publications

This paper uses world records by age in running, swimming, and rowing to estimate a biological frontier of decline rates for both men and women. Decline rates are assumed to be linear in percent terms up to a certain age and then quadratic after that, where the transition age is estimated. For both men and women decline rates are smallest for rowing, followed by swimming and then running.

Decline rates for women are roughly the same as those for men for the short swimming events. They are slightly larger for the longer swimming events and for the rowing events. They are largest for running, more so for the longer events than the shorter ones. The age at which there is a 50 percent decline from age 40 ranges from 70 to 90, an optimistic result for humans. The estimated decline rates can be used by non physically elite people under the assumption that their decline rates in percentage terms are similar to those of the elite athletes.

This paper uses an estimated interest rate rule of the Fed to argue that the low recent interest rates may be due to a change in Fed behavior. Prior to the Great Recession the Fed’s behavior is consistent with the rule.  During the recession the zero lower bound was hit in 2008.4.  The rule unconstrained called for negative nominal interest rates during this period, and so it became inoperative.  The Fed kept the interest rate at roughly zero through 2015.  This was a period of low inflation and still fairly high unemployment rates, and the rule called for essentially zero interest rates through about 2010.  Beginning in 2011, however, the rule called for rising interest rates, and between 2011 and 2019 the predicted interest rates from the rule are always higher than the actual rates.  Between 2011 and 2019 the Fed was more expansive than its historical behavior as estimated by the rule. The COVID experience through 2022.1 also shows the Fed setting historically low interest rates beginning in 2021 in the face of rising inflation and falling unemployment. In short, the low recent interest rates may be because of a change in Fed behavior.

This note argues that the Fed does not have much effect on inflation expectations and that its effect on aggregate demand, and thus on inflation, is modest. Econometric results suggest that a short term interest rate increase of 1.0 percentage point results in a decrease in inflation of 0.43 percentage points after five quarters. The unemployment rate is 0.17 percentage points higher. Therefore, lowering inflation by 2 percentage points, if this is needed, requires about a 4 to 5 percentage point increase in the interest rate, with the full effect taking about five quarters.

This paper uses an econometric approach to examine the inflation consequences of the American Rescue Plan Act of 2021. Price equations are estimated and used to forecast future inflation. The main results are: (1) The data suggest that price equations should be specified in level form rather than in first or second difference form. (2) There is some slight evidence of nonlinear demand effects on prices. (3) There is no evidence that demand effects have gotten smaller over time. 4) The stimulus from the act combined with large wealth effects from past household saving, rising stock prices, and rising housing prices is large and is forecast to drive the unemployment rate down to below 3.5 percent by the middle of 2022. 5) Given this stimulus, the inflation rate is forecast to rise to slightly under 5 percent by the middle of 2022 and then comes down slowly. 6) There is considerable uncertainty in the point forecasts, especially two years out. The probability that inflation will be larger than 6 percent next year is estimated to be 31.6 percent. 7) If the Fed were behaving as historically estimated, it would raise the interest rate to about 3 percent by the end of 2021 and 3.5 percent by the end of 2022 according to the forecast. This would lower inflation, although slowly. By the middle of 2022 inflation would be about 1 percentage point lower. The unemployment rate would be 0.5 percentage points higher.

This paper discusses some macro links that are missing from trade models. A multicountry macroeconometric model is used to analyze the effects on the United States of increased import competition from China, an experiment that is common in the recent trade literature. In the macro story a fall in Chinese export prices is stimulative. Domestic prices fall, which increases real wage rates and real wealth, which increases household expenditures. Trade models do not have these channels, and they likely overestimate the negative effects or underestimate the positive effects on total output and employment from increased Chinese import competition. They lack some important aggregate demand channels.

This comment points out mismeasurement of variables in the DSGE model in Smets and Wouters (2007) and in models that follow the Smets-Wouters measurement procedures. The mismeasurement errors appear to be large.

This paper lists 19 points that follow from results I have obtained using a structural macro-economic model (SEM). Such models are more closely tied to the aggregate data than are DSGE models, and I argue that DSGE models and similar models should have properties that are consistent with these points. The aim is to try to bring macro back to its empirical roots.