curve - policymakers might prefer a more accommodative monetary policy. given the complexity of the signal - extraction problem, we should approach our task with considerable humility. we recognize that financial assets prices reflect the collective views of market participants. they may reflect not only changes in expected paths and uncertainty about those paths but also shifting relationships, changes in investor risk preferences, and developments in the structure of various securities markets. thus, we use market prices alongside many other economic indicators, including statistical releases and large amounts of qualitative evidence. we can enhance the role of markets by improving the availability of high - quality data for example, about corporate financial conditions and by working to improve our ability to extract signals from market data. the most significant challenge in this setting is, however, perhaps endemic to the task : our own policies and actions affect market prices. as a result, when we look to financial markets for information, the information we seek may be shaped in part by our own views. the more that " market information " reflects our own actions, the less it is useful as a source of independent information to inform our policy judgments. we need to be alert to this " mirror problem, " in which markets can cease to provide independent information on current and prospective financial and economic developments. in the extreme case, financial markets keenly follow the federal reserve, the federal reserve is equally attuned to the latest financial quotes, and fundamentals of the economy are obscured. under such circumstances, asset prices might teach us only about our skills as communicators. fortunately, the prospect for profits - the critical underpinning of all markets - mitigates this problem. investors have strong financial incentives to analyze information about inflation and the macroeconomy to better predict the path of monetary policy. after all, fed communications and forecasts are fallible. the anticipated dispersion of investors'views implies a distribution of returns with substantial rewards for those who get it right. market - based information is surely important in determining good monetary policy. this does not mean, however, that the fed's goal is to align its views with those of the markets or that it wants the markets'views to match its own. instead, policymakers benefit greatly by listening to views expressed in markets that are at least somewhat independent of fomc communications. we can further enhance the role of markets by enriching our understanding of the interplay between communication policies of central banks and market prices. good

lower bound, and secular stagnation, ” with the importance of usury laws having diminished since 1936. there is an old joke about our field – not the one about the one - handed economist, nor the one about “ assume you have a can opener, ” nor the one that ends, “ if i were you, i wouldn ’ t start from here. ” rather it ’ s the one about the ph. d. economist who returns to his university for his class ’ s 50th reunion. he asks if he can see the most recent ph. d. generals exam. after a while it is brought to him. he reads it carefully, looking perplexed, and then says, “ but this is exactly the same as the exam i wrote over 50 years ago. ” “ ah yes, ” says the professor. “ it is the same, but all the answers are different. ” is that really the case? not really, though it is true to some extent in the realm of policy. to discuss the question of whether the answers to the questions of how to deal with macroeconomic policy problems have changed markedly over the past half - century or so, i will start by briefly sketching the structure of a basic macro model. the building blocks of this model are similar to those used in many macro models, including frb / us, the fed staff ’ s large - scale model, and a variety of dsge ( dynamic stochastic general equilibrium ) models used at the fed and other central banks and by academic researchers. bis central bankers ’ speeches the structure of the model starts with the standard textbook equation for aggregate demand for domestically produced goods, namely : 1 1. ; 2. next is the wage - price block, which is based on a wage or price phillips curve. okun ’ s law is included to make the transition between output and employment ; 3. monetary policy is described by a money supply or interest rate rule ; 4. the credit markets and financial intermediation are built off links between the policy interest rate and the rates of return on, and / or demand and supply functions for, other assets ; 5. the balance of payments and the exchange rate enter through the balance of payments identity, namely that the current account surplus must be equal to the capital account deficit, corrected for official intervention ; 6. dynamics of stocks : there are dynamic equations for the capital stock, the stock of government debt, and the external debt. when i was an undergraduate at