Saturday, October 11, 2014

A Wacky Attack on the Federal Reserve Transparency Act at Thoughts on Liberty

Over at Thoughts on Liberty, Brittney Wheeler has made some poorly founded claims about Federal Reserve policy and oversight. Usually when I read some bit of foolishness promoted by the ToL crowd regarding liberty, I ignore it because they are arguing about social issues. This recent bit is too much for me sit back and let the authors at ToL continue to spout their ignorance. In this case, Brittney Wheeler needs to spend more time reading about the Federal Reserve, public choice economics, and monetary policy in order to formulate a useful opinion about the Fed. I find the lack of expertise and standards at ToL appalling, given that they are writing for such a broad audience. As usual, the author is bordering on charlatanism in this recent post.

Wheeler has chosen a poor time to defend a lack of transparency at the Fed. Recently, Carmen Segarra exposed officials at the Fed for specially favoring Goldman Sachs. According to USA Today,
In one session on tape, as the examining team was discussing tactics for probing a Goldman deal one of them characterized as "legal but shady," this timidity was on full display.

"I think we don't want to discourage Goldman from disclosing these types of things in the future," said one male participant who remained unidentified in the transcript, "and therefore maybe you know some comment that says don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily. Like I don't want to, I don't want to hit them on the bat with the head [sic], and they say screw it, we're not gonna disclose it again, we don't need to."
Officials at the Fed were concerned with not offending a bank that they were bailing out. Think about the insanity of this. A large financial firm acts irresponsibly in the market. Not only did the U.S. government socialize the losses, they did not want to offend those responsible for this disaster. Instead of ensuring discipline within the market, they give a poorly behaved firm special treatment! When the Federal Reserve severs the decisions of a firm from the profits and losses that result from those decisions, they destroy market discipline and deal harm to the process by which markets provide information of scarcity and wants to consumers and producers. It is clear that officials are in no position to regulate the financial industry. Wheeler fails to consider this recent fiasco in her post.

Perhaps Miss Wheeler is living under a rock. This would explain why she ignores the recent revelation and argues for maintenance of Fed independence.
Why is the independence of the Federal Reserve important? Why shouldn’t Congress have a hand in monetary policy actions? The Fed was specifically designed to maintain as much independence from the political process as possible… and with good reason! Effective monetary policy must be concerned with long-run goals, not short-term political gain.Although the Fed ultimately does answer to Congress and the people in terms of its mandated goals, there is a difference between being accountable for achieving goals and actually allowing Congress to insert itself into the monetary policy making process.
But what is effective monetary policy? This is where Wheeler finds herself in the mud because she does not understand the topic about which she writes. Her statement also implies that she does not consider, or perhaps, lacks the facility to consider the dynamics and effects of political decision making.

Whether or not the Federal Reserve is independent, policy is decided on a political basis. In one case, firms receive special privileges according to the dictate of Fed officials. In the other case, those in the legislative branch sway policy in favor of interest groups. Of course, reality is a mixture of these cases, probably weighted more toward the first than the second at present. While the second case may be worse than the first – it is difficult to say for sure – robust political economy tells us that the actions of Fed officials today are not appropriately constrained so as to prevent both and provide an outcome better than the one that would likely result in the market. I expect that transparency will be a relatively effective constraint given a robust rules framework.

The appropriate policy decision, then, does not choose only between oversight or no oversight. Oversight is of little help without a robust framework to guide policy. Federal Reserve policy must be guided strictly by a well-defined and well-implemented rule in order to prevent the influence of special interests over monetary policy. Wheeler would be better off arguing that the Fed should be audited, but that any legislation that promotes an audit should also include a provision for a monetary rule. This would neuter the ability of Fed officials to grant special favors to firms and to politicians. And, in line with Hayek’s thesis in The Constitution of Liberty, this type of regime would make the consequences of one’s actions more predictable. As he writes early in the book,
This is possible only by the state’s protecting known private spheres of the individuals against interference by others and delimiting these private spheres, not by specific assignation, but by creating conditions under which the individual can determine his own sphere by relying on rules which tell him what the government will do in different types of situations.
If they want to do the world a favor, the authors at ToL should first read the thoughts of their forbearers and understand the deeper substance of the political debates in which they engage. (Wheeler did at least read one academic paper in building her argument.)  At the core of an argument for limited political intervention is a desire for good rules that constrain the behavior of agents both in the private and public spheres. Those rules require transparency in order to be effective. If independence is sacrificed by transparency as a consequence of the Federal Reserve Transparency Act, the independence lost is the sort of independence that allows Fed officials to treat banks like Goldman Sachs as above reproach. This is a type of independence that is not subject to rules. Instrument independence, the type on which Miss Wheeler focuses her post, can be facilitated by the inclusion of George Selgin's five suggestions to guide the form of Fed operations: “(1) abolish the primary dealer system, (2) limit or abolish repos, (3) abandon “Treasuries only,” (4) revive the Term Auction Facility, and (5) stop last-resort discount window lending (312).”

The text I cite from ToL contains an additional problem. Wheeler fails to defend her claim that independence is necessary and sufficient for the Fed to be effective. She needs to consider whether the Fed was effective at all. Instead, she buys into the typical rationale for a central bank,
The Federal Reserve System was created in 1913 with the goal of providing a more stable and flexible monetary and financial system at a time when banking panics were a common occurrence and caused a lot of economic distress.
Really? According to Selgin, Lastrapes, and White, the Fed has caused more volatility than it has helped prevent. Anyone who reads this blog knows that Fed officials engaged in disastrous policies alongside the insane Bank of France during the Great Depression. Even when we remove these years from the record, Selgin, Lastrapes, and White show that the Fed regime has performed about as well as pre-Fed arrangements. The pre-Roosevelt Fed was had a high degree of independence, but this did not stop the implementation of destructive policies that ushered in the Great Depression. I hope that Miss Wheeler can see how the stated purpose of the Federal Reserve differs from its actual consequences. Let's not be given to the nirvana fallacy. Miss Wheeler would also benefit from reading Timberlake to understand the central bank role of clearinghouse associations before the establishment of the Fed.

Finally, Wheeler fails to show the reader what effective monetary policy looks like. As I have shown in the final section of “Whither Gold?”, good policy is both predictable and makes the monetary base respond to changes in demand for base money. As long as we the Fed exists, its actions should be limited to facilitating changes in demand for base money and thus provide a nominal anchor much like the gold standard provided. For this rule to be executed successfully requires increased transparency at the Fed. In other words, we cannot be sure monetary policy is effective unless we know the rationale behind the implementation of those policies. In the case of a nominal income level target, the rationale comes from Say’s identity and the equation of exchange. If implemented as a policy rule within the framework of the Federal Reserve Transperency Act environment, there is a much greater probability that the rule will be implemented properly.

Summing up, implementation of a good rule is not possible without transparency - the type which the Federal Reserve Transparency Act promotes. Given the special treatment of Goldman Sachs in the recent crisis, it is critical that we implement both a good policy rule and framework for transparency. These cannot be treated separately. Wheeler should not be arguing that the Federal Reserve Transparency Act is going to hurt the efficacy of monetary policy. She should argue that transparency must include a rule so that market actors can form more accurate expectations.

Monday, October 6, 2014

Two Roads?: Endogeneity of Credit, Expectations, and Fed Activism

Like gold, credit is subject to laws of supply and demand. Since it doubles as money, its quantity can adjust to alleviate an excess demand for money assuming that expansion is not limited by elevated credit risk. We can expect credit markets to conform more closely to the classical model if policy uncertainty is reduced (Koppl 2002, 184-194).[1] A consistent rule like nominal income targeting would help limit some of this risk by stabilizing expectations about monetary policy. Not only does the base money supply become responsive to demand under a nominal income target regime; credit markets become more flexible too. In what follows, I will outline the operation of credit markets as would occur absent outside interference. I will also analyze the effects of central bank activism and of regulation of credit on the responsiveness of credit markets to demand for money.

The relationship of credit and an endogenous money stock has long been recognized (Thornton 1939; Wicksell 1936; Hawtrey 1919). The response of credit to an increased demand for money is not only an empirical observation. As Glasner aptly points out, “nominal balances [of banks] fluctuated with ‘the needs of trade.’ . . . The law of reflux, in fact, is equivalent to Say’s Identity (1985, 47).” Much like the response of the gold production to an increase in the price of gold, an increased demand for money is concomitant with a rise in demand for money-like substitutes. Financial intermediaries respond to this demand by lowering reserve ratios and expanding their balance sheets (Leijonhufvud 1979; Gorton and Pennacchi 1990; Selgin and White 1994; White 1999).

For clarification, we can imagine a scenario where credit creation helps overcome a shortfall in aggregate demand. Consider an economy that is at the bottom of an economic depression. Prices are still falling, but production and employment have finally begun to increase. Sensing a rise in optimism, entrepreneurs begin to attract investment into new projects.[2] During the depression, banks had to increase their reserve levels in order to maintain solvency. Now that the outlook has improved, banks that survived the spike in defaults begin to increase net investment. They provide the money necessary for entrepreneurs to employ inputs left idle by the depression. Once economic volatility subsides enough to allow the expectations of investors and entrepreneurs to converge to a great enough extent, the former will extend credit to the latter. As realistic plans for a new ordering of resources emerge, output begins to increase and relieve the shortfall in demand.

In recent years, the Federal Reserve, under the chairmanship of Ben Bernanke, has failed to lead the economy into a robust recovery. Instead, the Bernanke Fed has taken on unprecedented roles as a financial regulator and credit allocator (Hummel 2012). Furthermore, the payment of interest on excess reserves has served to incentivize the persistence of low market rates of interest. Increased uncertainty is evidenced increased demand for liquidity as near zero returns on U.S. treasury bills and an elevated spread between these and treasury bonds reflect (U.S. Treasury). Due in part to policy uncertainty and in part to perverse incentives from risk free returns, creditors are more risk averse than usual. Since the start of the crisis in 2008, there has been drop in both the level and rate of growth of bank credit at all commercial banks (see FRED). This is true even as the recession ended 5 years ago. Given an increase in Fed activism under Bernanke, banks were better off lending only to the highest quality borrowers, investing in treasury bills, or leaving excess reserves on account at the Federal Reserve to collect interest.[3]

This pattern of policy activism has increased uncertainty.[4] Every time the officials at the Federal Reserve adopt an unexpected policy, market actors must recoordinate their actions to match these new circumstances. If these actors begin to expect numerous changes in policy within a certain time period but are unsure of what those policies will be, they will limit risky activity and the length of investment. In the case of banks, intermediaries will refuse to offer loans to borrowers to whom they would otherwise lend. As banking activity slows due to uncertainty, credit markets are less able to relieve an excess demand for money. Anemic economic growth results.

[1] Roger Koppl argues, “Fed activism did induce instability in money demand. The Fed should not abandon money supply targets, but should pursue them according to a fixed rule.”
[2] This story is consistent with the “stylized facts” of the business cycle. SeeSnowden and Vane (2005).
[3] During the crisis, inflation hedging waned as liquidity preference increased (Gurnayaka, Sack, and Wright 2010, 89).
[4] Ironically, Bernanke cited the importance of a “clear and credible commitments about future policy actions [author’s emphasis].” Cited in Espinosa (2012).

Saturday, October 4, 2014

Brief Thoughts on the Gold Standard as a Rule-Based Regime

I'm making what I hope are some final changes to "Wither Gold", a paper where I integrate gold flows and monetary policy decision rules into Austrian analysis. It has struck me that the gold standard is actually just a complex rule-based regime. These rules were not altogether unambiguous.
Identifying Federal Reserve policy as a violation of the “rules of the game” reveals a weakness of the gold standard. Not only was there no mechanism of enforcement for these “rules”. The “rules of the game” were an implicit agreement between authorities of different national central banks. The precise rules governing central bank management of the gold standard were not always clear. When the Federal Reserve System contracted the monetary base under the leadership of New York Federal Reserve governor Benjamin Strong in 1920, domestic prudence demanded that the Federal Reserve raise interest rates and reserve levels. At one point, Strong defended the systems role in maintaining stability.[1] Strong may have felt justified by the ends of this policy, but the means was dangerous. 
The Federal Reserve tended to follow the “Real Bills Doctrine” at the time, but its implementation was imperfect (Timberlake 2007). Again in 1927, a political battle between Strong and Miller as Strong wanted to help stabilize the European monetary situation and Miller was concerned about an expectant increase in speculation due to inflation (Wueschner 1999, 136-38). At times, Miller even waivered concerning his own policy (Wueschner 1999, 149). Collective decision-making over the monetary base, absent an explicit rule, yields most often a compromised outcome.[2] Absent a clear rule to guide policy, it is hard to imagine the implosion of the gold standard as anything but inevitable. It is also hard to imagine that investors and entrepreneurs felt confident about expectations regarding policy.
The next draft should be up soon.

[1] Benjamin Strong wrote to Montagu Norman at the Bank of England that without the Federal Reserve “bankers would now be insisting that borrower pay their loans, and, were this to force sacrifice sales of inventories at present quoted prices, we would have a long list of insolvencies, closing mills, unemployment etc.” quoted in Wueschner (1999, 18n89)
[2] Wueschner draws attention to this in reviewing the Federal Reserve’s deflationary policy in 1920:
The outcome, Strong later wrote to Norman, was not at all what he would have recommended, “nor indeed, confidentially, did [it] meet the advice of my associates in the Bank.” It amounted to a “compromise between differing views of our own with differing views in the Federal Reserve Board and finally, radically diferent views held by the officers of the Treasury.”

Wednesday, September 24, 2014

Two Roads?: Endogeneity of the Monetary Base during the Gold Standard (Part II)

In some ways, a nominal income target emulates the operation of a gold standard. Both a gold standard and a nominal income target allow the stock of base money to adjust to demand for money. The historical gold standard serves as an ideal case study as data exists for both the supply of and demand for monetary gold. The largest increases in demand for gold occurred as a result of the decisions of Big Players – central banks – so it will be useful to observe changes in gold production and prices relative to changes in central bank holdings of gold and changes in the official gold price in different countries (Koppl 2002). In order to understand how the central bank affected the gold market as a Big Player requires that we consider the mechanism of the market for money.

Under a gold standard, production of gold responds the price of gold as determined by gold’s demand and supply. Below is a graph comparing the yearly change in the world’s total gold stock with changes in the real price of gold (U.S. Gold Commission,1982). The time required for the quantity of gold supplied to adjust to changes in demand typically took one to two years (Rockoff 1984). Not surprising, changes in the gold stock trail movements in the real price of gold. The divergence between the price of gold and the rate of increase of the gold stock during the first decade of the twentieth century was likely due to the emergence of the cyanide process at the end of the 19th century. This represented a positive shock to the supply of gold. On the demand side, changes in central bank gold reserves exercised tremendous influence over the price of gold. The data does not express this as clearly as the relationship between gold’s price and the quantity of gold supplied as the Federal Reserve did not consolidate much of the gold stock in the United States until the end of World War I. A similar problem holds after 1931 when England and other nations began to abandon the gold standard and 1933 when president Roosevelt devalued the dollar, thereby raising the world price of gold (Freidman and Schwartz 1963; McCloskey 1984). For the remainder of the decade changes in demand for gold are not fully captured by changes in gold reserve at central banks. During years where the data does not suffer from complications (1918-1931), there is a clear relationship between changes in gold reserves and changes in the real price of gold.

As noted above, the gold market was sometimes subject to distortions from price fixing. For example, France fixed the price of gold at an arbitrarily high price in 1927, after which point France began to accumulate a disproportionate share of the world’s gold (Irwin, 2012). In 1933, the United States made a similar move when the dollar was devalued so that the price for an ounce of gold rose from $20 per ounce to $35 (Friedman and Schwartz 1963). It is no surprise, then, that in the years that followed these price increases, the annual rate of increase in the world gold stock consistently rose for more than a decade. Ideally, a commodity standard would not be subject to price fixing.

In any case, there is a clear pattern. Changes in demand for gold correlate positively with a change in price. Changes in the production of gold are, subject to a 1-2 year lag, positively correlated with the price of gold. The quantity of gold supplied adjusts to meet the quantity demanded at a given price. That is to say that when gold serves as money, it is subject to Say’s principle. Say’s principle tells us that if there is a glut of goods subject to a single array of prices, then there is not enough money in the economy to clear all markets simultaneously at those prices. What is the cause of the excess supply of goods, but an excess demand for money? A higher real price of gold caused by an increase in demand for money promotes the production of more gold and the conversion of non-monetary gold into monetary gold. The market attempts to remedy the imbalance of trade, which in this case was caused by unpredictable central bank policies, by increasing the stock of base money. Prices convey that the remedy is needed.

We can see by this exposition that endogeneity of the money stock is critical for the functioning of a healthy monetary economy. Prices signal the wants and needs of consumers and scarcity of resources to producers (Hayek, 1945). Embedded in the use of a commodity as money is the market’s auto-poetic response to a shortage in money. It should come as no surprise that the supply of money has come to include a mechanism that responds to disequilibrium pricing. The development of money itself was the market’s response to the high transaction costs of barter (Menger 1976). Its quantity adjusts in response to changes in demand. Under a gold standard, this adjustment translates to a reduction of gluts in the production of goods that are not gold.

Tuesday, September 23, 2014

Two Roads?: Nominal Income Targeting and Free Banking (Introduction)

I'm beginning a series on nominal income targeting and free banking. Today I suggest a rough outline for synthesis of the two views. 

Over the last few decades, economists with monetarist sympathies have proposed alternative arrangements for the modern financial system. Proposals tend to fall under one of two categories. Under one scenario, the central bank targets the long-run level of nominal income, offsetting changes in demand for money by inversely adjusting the base. Crises that exhibit positive shocks to the demand for money are alleviated as the central bank increases the base money stock, returning nominal income to its former level. The second option differs in that it would eliminate the central bank altogether. Instead, private banks adjust the total volume of currency in circulation in accordance with changes in demand for bank currency. As demand for bank currency increases, banks can increase their liabilities relative to their net assets. Banks increase the quantity of fiduciary currency in circulation until the marginal cost of issuing currency is equal to the marginal revenue earned from issuing new loans (White 1999). Under this proposal, the quantity of money is entirely dependent upon market processes which occur within a scheme of private ordering.

Although the two proposals are often thought of as distinct schemes, it is possible, if not necessary, to integrate the two perspectives. The reason for this requires elaboration. In a world of free banking, legal tender monopoly does not exist. A banker can create new credit against assets using whatever unit of account he prefers. He will most likely choose whichever dominant unit of account arises within the market. The asset that is used as the unit of account will serve as base money whose quantity produced in a given period is dependent upon its demand in the market. The base money stock is therefore endogenous under free banking. As long as legal tender laws exist, however, this proposal is not possible. Base money will continue to be the fiat legal tender prescribed by law. Its quantity is determined in part by the whims of policy makers.

Nominal income targeting can be seen as a halfway house between free banking and the current monetary regime. It does not require the elimination of a central bank and the end of a fiat legal tender standard. Instead, it endogenizes the base money stock according to theory derived from Say’s Principle and the equation of exchange (Clower and Leijonhufvud 1963). The rule emulates the functioning of a commodity standard where production of the commodity serving as base money fluctuates concomitantly with changes in demand for that commodity, but adjustments occur instantaneously. This mechanism will be described more robustly in later posts. Alongside these adjustments in the base money stock, private banks are free to extend credit in a manner consistent with free banking theory and thereby offset demand deficiencies in markets where the existent money stock is not sufficient to clear the existence stock of goods. Thus, a nominal income targeting regime can approximate the functioning of a commodity base money stock. It does not preclude the existence of a free banking regime. It only constrains the unit of account used by such a regime. If free banking cannot be approximated in this manner, the problem is one of financial regulation, not a central banking regime that maintains a nominal income target. 

In following posts, I will argue that nominal income targeting is a necessary stepping stone toward a free banking regime. First, I will present a narrative of the gold standard that conveys the significance of the endogeneity of the base money stock. Second, I will investigate the mechanics of credit creation and its relation to the endogeneity of the money stock. I will follow by explaining the theory behind a nominal income target, its mechanics, and its role in stabilizing expectations. Finally, I will close by tying the two theories together and proposing an outline of marginal policy changes that will greatly improve financial systems ability to respond to shocks.

Friday, September 19, 2014

Bringing Big Players into the Gold Standard Narrative and the Argument for Nominal Income Targeting

I've made some adjustments to my paper to incorporate Roger Koppl's "Big Players". It really helps tie together my argument for nominal income targeting and narrative of the gold standard.
Central bank activism under the gold standard can be typified by the Big Player problem. “Big players are privileged actors who disrupt markets (Koppl 2002).” They are capable of doing so because by virtue of their size, their immunity from market discipline, and their reliance on discretion:
They are big in the sense of that their actions influence the market. They are insensitive to the discipline of profit and loss. And, they are arbitrary in the sense that their actions are based on discretion rather than any set of rules. Big Players have power and use it. (Koppl 1996, 262)
The Federal Reserve, or any other central bank, when not constrained by a rule, acts as a Big Player. From this logic, exchange rate stabilization was not just a policy that would have minimized price distortions if implemented. As a rule, it would have prevented the Big Player type distortions that result from uncertainty of future policy. Of concern is the effect of the Big Player on expectations. When Big Players intervene in markets without clear constraints on their actions, markets are unable to form clear expectations. Activist policy makers cannot be modeled by other economic agents as they lack stable parameters that guide their decisions (Koppl 2012, 123-24). As Big Players do not act consistently, a given state of reality can yield a variety of policy decisions (125). Market actors are left in a position where they must attempt to forecast the future given the possibility of very different policies being implemented. Divergent expectations can arise as some actors invest according to fundamental analysis – price is the discounted sum of the expected future revenue stream – while others bet on different possible states that can result from different policies. Expectations diverge and price and output volatility results. Increased randomness makes profitable investment more a function of luck then of accurate modeling. Markets thus lose information held by “fundamentals” investors and become more fragile as a result. 
The modern international monetary system, comprised of independent central banks who issue fiat currency, is not subject to the same restrictions as a gold standard. This is not to suggest that a gold standard is without merit, only that any managed commodity standard with fixed exchange rates – stated simply, a fixed price for money – is inherently fragile, especially when policymakers act as Big Players. The Big Player problem has not disappeared. In the modern system, instead of holding gold, central banks expand the monetary base by purchasing debt. Many central banks hold primarily dollar denominated debt and target a specific exchange rate with the dollar. Such policies are reminiscent of the fixed exchange rates of the gold standard. Thus, the same problems related to discretion that plagued the gold standard are present in the modern system.

Assuming there is no radical regime change, these problems can at least be remedied in part by the implementation policy rules (Koppl 2012, 185). Unlike gold, whose quantity produced responds slowly to changes in demand, dollars can be issued by the Federal Reserve via the open market. If foreign or domestic demand for dollars increases, the Federal Reserve – the central bank at the center of the international monetary system – can change the volume of base money to offset the effect of increased demand on prices. The Federal Reserve can adopt a policy of nominal income level (MV) stabilization. Observed and expected changes in demand for dollars are automatically adjusted for under a nominal income target regime. Which measure of nominal income is most appropriate is a subject beyond the purview of this paper, but the policy can at least be analyzed theoretically.

Monday, September 15, 2014

Lesson of the Gold Standard: The Central Bank Should Target Nominal Income - Revisions to My Latest Paper

I've finished the next revision of my paper, "Wither Gold: A Reformulation of Austrian Business Cycle Theory". I've made substantial revisions. Of interest to many of my readers, it now includes commentary arguing that the mechanics of the gold standard suggest that nominal income targeting is an appropriate policy for a central bank at the center of a financial system. Here's a peak at the new section.

Fortunately, the modern international monetary system comprised of independent central banks who issue fiat currency is not subject to the same restrictions as a gold standard. This is not to suggest that a gold standard is without merit, only that any managed commodity standard with fixed exchange rates – stated simply, a fixed price for money – is inherently fragile. This shortcoming has not entirely disappeared. In the modern system, instead of holding gold, central banks expand the monetary base by purchasing debt. Many central banks hold primarily dollar denominated debt and target a specific exchange rate with the dollar. Such policies are reminiscent of the fixed exchange rates of the gold standard. Thus, the same problems that plagued the gold standard are present in the modern system. 
Assuming there is no radical regime change, these problems can at least be remedied in part by the implementation policy rules. Unlike gold, whose quantity produced responds slowly to changes in demand, dollars can be issued by the Federal Reserve via the open market. If foreign or domestic demand for dollars increases, the Federal Reserve – the central bank at the center of the international monetary system – can change the volume of base money to offset the effect of increased demand on prices. The Federal Reserve can adopt a policy of nominal income level (MV) stabilization. Observed and expected changes in demand for dollars are automatically adjusted for under a nominal income target regime. Which measure of nominal income is most appropriate is a subject beyond the purview of this paper, but the policy can at least be analyzed theoretically.
It goes on to support an nominal income futures market so as to endogenize Federal Reserve policy according to market expectations.