# Peter von zur Muehlen

Peter von zur Muehlen (born 1939) is an economist and fine arts photographer. As an economist at the Board of Governors of the Federal Reserve System, he specialized in the fields of macroeconomics, monetary economics, and econometrics. As a fine arts photographer, he focused his work on the nude, still life, the urban landscape, and street photography.

## Early life and education

Peter von zur Muehlen was born in Berlin, Germany, in 1939, and immigrated to the United States in 1956. He earned a BA at Washington University and a Ph.D from Princeton University. He has been married to the photographer Bernis von zur Muehlen since 1973.

## Economics

After receiving his Ph.D. in 1970, von zur Muehlen spent his career as a research economist in the Division of Research and Statistics at the Board of Governors of the Federal Reserve System in Washington D.C., where his research led to a number articles on monetary theory, monetary policy, optimal control, robust control, econometric theory, large-scale model building, and time series analysis. In 1970, von zur Muehlen's study of the likely causes of observed nominal rigidity of prices within the context of dynamic optimization led a model in which sellers are forced to delay price adjustments whenever buyers react more strongly to large price variations than to smaller changes. Being inherently dynamic and forward-looking, the model yielded delayed, i.e., sticky price adjustments in the form of time-varying distributed lags to non-stationary pricing targets. These papers anticipated later work by others that examined nominal rigidity in prices and wages resulting from staggered or overlapping price and wage contracts that would become the foundation of the New Keynesian economics.
In a related concern with pricing, von zur Muehlen addressed the widely observed fact that prices tend to vary across sellers within the same market with two studies that proved the existence of search-induced equilibrium price distributions in monopolistic competition and in perfect competition, respectively.
von zur Muehlen's earliest work on monetary policy addressed the FOMC's (now considered odd) practice during the seventies of announcing targeted interest rate bands within which to confine policy objectives when it targeted unobserved money supply but did not provide contemporaneous information about intentions. As a consequence, financial markets were required to infer policy by interpreting observable interest rate movements that served as policy signals. An interest-rate band regime could be justified as optimal if markets are discontinuously more sensitive to large vs. small interest rate movements. In a 1978 article, von zur Muehlen showed that optimal interest rate bands can be expressed as variable (S,s) (or min/max) policy rules derived from inventory theory. A further exploration of money stock targeting practiced during the seventies led to a paper, co-authored with Peter A. Tinsley, that examined the short-run volatility of targeting this aggregate and various alternatives.
In an early advocacy of stochastic dynamic optimization for economic policy, a paper co-authored with Tinsley cast the problem as a case of maximizing the probability of the desired target outcome.
For monetary policy to be effective, the authority needs to assess unobservable expectations in the private sector.To this end, a paper by von zur Muehlen examined the potential role of asset prices as signals of expected price and inflation. A related paper, co-authored with Tinsley and Flint Brayton of the Federal Reserve, produced extensive empirical evidence to highlight the pros and cons of utilizing commodity prices in the formulation of monetary policy.
In 1982, using a game-theoretic approach to study the effect of Knightian uncertainty, von zur Muehlen authored a paper—referred to by Nobel Laureates Lars Peter Hansen and Thomas J. Sargent as "early advocacy of zero-sum two person games for representing model uncertainty and designing macroeconomic rule""—that disproved Milton Friedman's assertion that extreme uncertainty required non-activist monetary policy in the form of constant money supply growth rather than any optimization-based reactive monetary policy. Subsequently, in a 2001 article, von zur Muehlen and Robert J. Tetlow focused on the role of learning by agents in the economy to further challenge Friedman's preference for simplicity over discretion—including optimal policy—. Finally, in an extension of von zur Muehlen's earlier game-theoretic contribution to monetary policy, Tetlow and von zur Muehlen used the small-gain theorem of robust control to show that Knightian uncertainty leads to more—not less and presumably more cautious—aggressive policy. A third paper, exploiting results from robust control theory, re-examined Thomas J. Sargent's "Conquest of American Inflation". Finally, in their contribution to the literature on optimal learning, Tetlow and von zur Muehlen used the small-gain theorem to analyze robust monetary policies that keep learning by the economy's agents robustly within a stable equilibrium.
In 2022, von zur Muehlen employed a game-theoretic approach to optimal Ramsey policy to shed light on the problem of climate policy when the private sector's—to the government unobservable—beliefs are potentially too optimistic or too pessimistic and showed that private doubts justify stronger climate policy with higher carbon taxes.
With noted econometrician P. A. V. B. Swamy, von zur Muehlen explored the logical foundations of econometrics in, the nature of causality in the probabilistic domain, issues in identification (with George S. Tavlas and others), and, with Swamy, J.S.Mehta, and I-Lok Chang, a proposed generalized least squares approach to estimating causal effects in regression. Theoretical as well as empirical work on stochastic time-varying coefficient modeling yielded a number additional publications.

## Photography

As a photographer,von zur Muehlen focused on nudes, still lifes, the urban landscape, and street photography in travels abroad, including Nepal and Morocco, and Prague. His work has been exhibited in private galleries and museums, including Marcuse Pfeifer Gallery in New York, the Washington Project for the Arts, the Corcoran Gallery of Art, and the Virginia Museum of Fine Arts.

## Photography Publications

* With Bernis von zur Muehlen, Prague Revisited: From World War II to the Velvet Revolution.
* Terra Sancta: Photographs from Israel and Sinai, Nepal, and the North American Deserts.
* One of a Kind: Recent Polaroid Color Photography.