Monetary Economics.

• Position: National Bureau of Economic Research's program

The NBER's Program on Monetary Economics met in Cambridge on November 7. Program Co-Directors Christina D. Romer and David H. Romer, both of University of California, Berkeley, organized this agenda:

James J. Choi, Harvard University; David Laibson, NBER and Harvard University; and Brigitte C. Madrian and Andrew Metrick, NBER and University of Pennsylvania, "Consumption-Wealth Comovement of the Wrong Sign" Discussant: Matthew D. Shapiro, NBER and University of Michigan

Michael D. Bordo, NBER and Rutgers University, and Joseph G. Haubrich, Federal Reserve Bank of Cleveland, "The Yield Curve, Recessions, and the Credibility of the Monetary Regime: Long-run Evidence, 1875-1997" Discussant: James H. Stock, NBER and Harvard University

Craig Burnside, University of Virginia, and Martin Eichenbaum and Sergio Rebello, NBER and Northwestern University, "Government Finance in the Wake of Currency Crises" Discussant: Guy Debelle, MIT

Jon Faust, Eric T. Swanson, and Jonathan H. Wright, Federal Reserve Board, "Do Federal Reserve Policy Surprises Reveal Inside Information About the Economy?" Discussant: David H. Romer

Jean Boivin, NBER and Columbia University, "Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data" Discussant: Andrew Levin, Federal Reserve Board

Ignazio Angeloni and Benoit Mojon, European Central Bank; Anil K Kashyap, NBER and University of Chicago; and Daniele Terlizzese, Banca d'Italia, "The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S." Discussant: Marc Giannoni, Columbia University

Economic theory predicts that an unexpected windfall in wealth should increase consumption as soon as it is received. Choi, Laibson, Madrian, and Metrick test this prediction by using administrative records on over 40,000 401(k) accounts. Contrary to theory, the authors estimate a negative short-run marginal propensity, to consume out of orthogonal 401(k) capital gains shocks. Their findings suggest that many investors are influenced by a reinforcement learning heuristic that causes high returns to encourage saving and low returns to discourage saying. These results help explain why consumption covariance with equity returns is so low, giving rise to the equity premium puzzle.

Bordo and Haubrich show that the stylized fact that the yield curve predicts future growth holds for the past 125 years, and is robust across several specifications. The monetary regime...