Monetary Policy and the Long Boom
This article is a reprint of a lecture—given in honor of Homer Jones—that examines the causes of the Long Boom. The author defines the Long Boom—1982 to the present—as the period of time in which the United States has known unprecedented economic stability. This period includes the first- and second-longest peacetime expansions in American history, separated by one relatively short and mild national recession. The author explores the internal changes in the structure of our economy, as well as external shocks and economic policy. He also discusses the reasons for the change in monetary policy. Monetary policy, he concludes, deserves most of the credit for the Long Boom because current policymakers have been more aggressive in responding to inflation, thereby keeping inflation low and recessions relatively rare. The author shows that the type of monetary research encouraged by Homer Jones at the Federal Reserve Bank of St. Louis placed renewed emphasis on the difference between the real interest rate and the nominal interest rate. This type of research sought numerical guidelines for using monetary statistics to make policy, and was responsible—at least in part—for changing monetary policy.