Terry Fitzgerald

Terry J. Fitzgerald

Senior Economist and Vice President

Terry.Fitzgerald@mpls.frb.org

Interests:
Monetary economics
Labor economics
Business cycle theory

Terry J. Fitzgerald is a vice president and senior economist in the Research Division of the Federal Reserve Bank of Minneapolis. He leads the Economic Analysis Group, which conducts policy-oriented research and produces a wide range of economic and policy analysis for senior bank management, the board of directors, the Federal Reserve System, and the public. Terry also coordinates policy activities across the Research Division, including support for FOMC briefings, presidential speeches and essays, and other policy activities and Research initiatives. His research focuses on the national economy and has appeared in professional journals and in publications of the Federal Reserve Banks of Chicago, Cleveland, and Minneapolis. He has served as a keynote speaker for a range of business, government, nonprofit, and public groups.

Terry has 25 years of experience with the Federal Reserve. He worked at the Federal Reserve Bank of Minneapolis while attending graduate school at the University of Minnesota. He rejoined the Bank as a visiting scholar in 2001 and as a full-time economist in 2006 before being promoted to assistant vice president in 2009 and to vice president in 2012. Prior to returning to Minneapolis, Terry served as a research economist at the Federal Reserve Bank of Cleveland and as a professor of economics at St. Olaf College in Northfield, Minnesota.

Terry holds a B.S. in economics from the University of Iowa and a Ph.D. in economics from the University of Minnesota.

The Band Pass Filter

We develop optimal finite-sample approximations for the band pass filter. These approximations include one-sided filters that can be used in real time. Optimal approximations depend upon the details of the time series representation that generates the data. Fortunately, for U.S. macroeconomic data, getting the details exactly right is not crucial. A simple approach, based on the generally false assumption that the data are generated by a random walk, is nearly optimal. We use the tools discussed here to document a new fact: There has been a significant shift in the money–inflation relationship before and after 1960.

Inflation and Monetary Policy in the Twentieth Century

This article characterizes the change in the nature of the money growth–inflation and unemployment– inflation relationships between the first and second halves of the twentieth century. The changes are substantial, and the authors discuss some of the implications for modeling inflation dynamics, notably for models of inflation that say that bad inflation outcomes result from poorly designed monetary policy institutions.

Understanding the Fiscal Theory of the Price Level

The Business Cycle: It’s Still a Puzzle

The business cycle is characterized by contractions and expansions in economic activity that are synchronized across a broad range of sectors. The authors provide evidence to document this, and survey some of the theories that have been proposed to explain it. Although much progress has been made, research in this area is still at an early stage.

Work Schedules, Wages, and Employment in a General Equilibrium Model with Team Production

This paper provides a prototype general equilibrium model of team production. Team production refers to production processes which require that the work schedules of heterogeneous workers be closely coordinated. The key innovation in the framework is that the work schedules, wages, and employment of heterogeneous workers are endogenously determined in the presence of team production. I demonstrate the potential importance of modeling team production through a quantitative example.

An Introduction to the Search Theory of Unemployment

The search theory approach to understanding unemployment flourished during the 1980s and 1990s. It has provided economists with a rich set of models for analyzing unemployment and labor market issues more generally. Unfortunately, while economists have found modern search theory to be an invaluable tool, the insights provided by this approach remain largely unfamiliar to noneconomists. This review is an attempt to reach out to those readers who are interested in acquiring a modern perspective by providing an introduction to the search theory of unemployment.

Inventories and the Business Cycle: An Overview

The literature on business inventory investment provides a good example of how theory and data interact in the ongoing process of research. This review of work on the relationship between inventory investment and business cycle fluctuations focuses on the developments of the last 15 years, a period characterized by renewed interest in the role that inventories play in the aggregate economy. A central issue underlying the literature is the relative importance of demand and supply shocks as sources of business cycle fluctuations–a question that continues to be debated today.

Reducing Working Hours

The hours of U.S. workers have shown little, if any, decline over the past few decades, while working hours in most other industrialized countries have fallen substantially. As a result, working hours in the United States now appear to be among the longest in the industrialized world. In response to these observations, several proposals have been made for shortening U.S. workers’ hours, both to increase their leisure time and to raise the number of jobs. In this article, the author documents historical trends in working hours, then examines how reducing weekly hours would affect employment and output. He finds that a shorter workweek may lead to a large decline in output with no increase in employment. Although these results are shown to be sensitive to modeling assumptions, they serve as a warning to policymakers.

Banking in Computable General Equilibrium Economies

In this paper we develop a computable general equilibrium economy that models the banking sector explicitly. Banks intermediate between households and between the household sector and the government sector. Households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement. Banks pool households’ savings and they purchase interest-bearing government debt and non-interest-bearing reserves. We use this structure to answer two sets of questions: one normative in nature that evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interest-rate policy rule.

A Simple Way to Estimate Current-Quarter GNP

This paper describes a method developed to predict the advance (first) estimate of inflation-adjusted gross national product (real GNP) using hours-worked data. Besides generating fairly accurate forecasts of advance GNP, the method has two implications. First, the Commerce Department seems to weigh the hours-worked data most heavily in its early estimates of real GNP but less and less so in its revised estimates. Second, analysts attempting to predict current-quarter outcomes in real time need to consider the availability and reliability of data at the time the forecasts are made.

Is There a Stable Relationship between Unemployment and Future Inflation? Evidence from U.S. Cities

This paper makes two straightforward points that we argue are central to understanding the literature and debate surrounding the stability of the Phillips curve. First, the endogeneity of monetary policy implies that aggregate data are largely uninformative as to the existence of a stable relationship between unemployment and future inflation. Second, if the NAIRU model is assumed to be true, regional data can be used to identify the structural relationship between unemployment and future inflation. We find that a 1 percentage point increase in the unemployment rate is associated with a roughly 0.3 percentage point decline in inflation over the next year.

Is There a Stable Phillips Curve After All?

The Phillips curve refers to a negative (or inverse) relationship between unemployment and inflation in an economy—when unemployment is high, inflation tends to be low, and vice versa. This inflation-unemployment link has been observed in many countries during many times, most famously by William Phillips in 1958 looking at historical data for the United Kingdom. If this relationship is stable (or “structural”)—meaning that it holds regardless of changes in the economic environment, including policy adjustment—then policymakers might be able to trade off increases in inflation to achieve lower unemployment, or the inverse.
However, research over the past 40 years has thrown a great deal of doubt onto whether a stable Phillips curve relationship exists. Economists have documented large changes over time in the relationship between unemployment and inflation. In addition, theoretical work has shown that the existence of an empirical association does not necessarily mean that policymakers can exploit that relationship; there may be a statistical correlation—but not a causal link—between inflation and unemployment.
In this essay, we revisit the stability of the Phillips curve. Our key insight is that if the analysis incorporates a central bank seeking to stabilize inflation, national data are likely to provide little information about the existence (or absence) of a stable relationship. We show that regional data can overcome this obstacle. While estimates of Phillips curves using national U.S. data are highly unstable over the past 40 years, we find that estimates based on regional data are remarkably stable. Our results suggest that a 1-percentage-point-lower unemployment rate is associated with higher inflation of 0.3 percentage points over the next year, and the stability of the relationship suggests that it might provide a viable tool for policymakers.

Degrees of Job Security

The Band Pass Filter

The “ideal” band pass filter can be used to isolate the component of a time series that lies within a particular band of frequencies. However, applying this filter requires a dataset of infinite length. In practice, some sort of approximation is needed. Using projections, we derive approximations that are optimal when the time series representations underlying the raw data have a unit root, or are stationary about a trend. We identify one approximation which, though it is only optimal for one particular time series representation, nevertheless works well for standard macroeconomic time series. To illustrate the use of this approximation, we use it to characterize the change in the nature of the Phillips curve and the money-inflation relation before and after the 1960s. We find that there is surprisingly little change in the Phillips curve and substantial change in money growth-inflation relation.

Reducing Working Hours: A General Equilibrium Analysis

An examination of the effects of restricting the weekly hours of workers in a heterogeneous-agent, general-equilibrium framework. The main findings are that restricting weekly hours increases employment substantially, but may also lead to large declines in wages, productivity, output, and consumption, and can increase the wage disparity between skilled and unskilled workers.

Work Schedules, Wages, and Employment in a General Equilibrium Model with Team Production

An analysis of working hours, wages, and employment when production requires coordinating the work schedules of heterogeneous workers. The author shows that this coordination aspect of production can have important policy implications.

Banking in Computable General Equilibrium Economies

In this paper we develop a computable general equilibrium economy that models the banking sector explicitly. Banks intermediate between households and between the household sector and the government sector. Households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement. Banks pool households’ savings and they purchase interest-bearing government debt and non-interest bearing reserves. We use this structure to answer two sets of questions: one normative in nature that evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interest-rate policy rule.

The Magnitude of the Speculative Motive for Holding Inventories in a Real Business Cycle Model

The motive to hold inventories purely in the hope of profiting from a price increase is called the speculative motive. This motive has received considerable attention in the literature. However, existing studies do not have a clear implication for how large it is quantitatively. This paper incorporates the speculative motive for holding inventories into an otherwise standard real business cycle model and finds that empirically plausible parameterizations of the model result in an average inventory stock to output ratio that is virtually zero. For this reason, we conclude that the quantitative magnitude of the speculative role for holding inventories in this model is quite small. This suggests the possibility that the study of aggregate economic phenomena can safely abstract from inventory speculation.