the overly expansionary monetary policy amply documented by john taylor. it was obvious to virtually all economists that the country needed a permanent budget shift as vietnam spending increased, but what came out of that was a delayed temporary tax increase. anything else would have made the war less popular, and by then the vietnam war was pretty darn unpopular. quite possibly, our intellectual understanding was not where it should have been in the late 1960s, but 90 percent of the policy problems were political, with the policymakers themselves. these days the board staff makes a baseline forecast and grafts on frbus to get the results for alternative scenarios. we actually began to do these types of experiments once our model was put together in the late 1960s. i was dying to present the results to the board, but never could get past lyle gramley, our sponsor but also our gatekeeper. he didn ’ t trust the model enough when it was used as a pure forecasting device. then, as i suppose now, we had the most trouble forecasting equipment investment - most of the other final demand sectors worked pretty well. the investment accelerator was also the reason our dynamic simulations ran off - track. when we would suspend the investment equation, things would work reasonably well. i have heard the modern day staff complain about estimating an accelerator effect for equipment and software and, believe me, i am sympathetic. another place where the intervening years have made a real difference is the way in which the baseline forecast itself was put together. in our day it was totally anticipations data - leading indicators of this or that, for a quarter or two ahead at most. today i hear dave stockton describe the baseline forecast in very model - oriented terms - this effect, that coefficient, and so forth. nowadays the baseline forecast also runs out a few years, something the judgmental forecasters of earlier days would never have attempted, and it even has measures of forecast uncertainty. all of these are real improvements, far beyond what was done in the 1960s. for me, this work all came to an end in may 1970. at the time i felt we had brought the model as far as i thought we could bring it, at least for a while, and i really wanted to do some other kind of economics. whether the external pastures were in fact greener i will never know - they just seemed greener at the time. so i left the board staff, confident that i would never return either to the board or to large - scale macro

banking institution at which economic policy research provided a solid analytical basis for policy discussions and decisions. to be sure, economic knowledge does not evolve in a straight path and setbacks are inevitable and unfortunate - the monetary policy failures of the 1930s and those of the 1970s are powerful reminders of that. but the research tradition that had started in the early days of the system is still with us, and today arguably plays a more central role in the policy process than ever before. characteristics of research at the board for the most part, research at the board has for many years been closely intertwined with policy and with current analysis and forecasting. in many other countries, it is not. at many central banks, research and current analysis are carried out in separate divisions, and interaction between the two groups of economists is limited. at the board, the mixing of research and operational work was not quite as thorough as it is today. in the 1970s and 1980s, many researchers, such as our three honorees, were doing work directly applicable to policy. but others had few day - to - day responsibilities and were fairly free to concentrate on long - run research projects, some of which appeared to have only tenuous connection to the work of the board. such a division of the staff was not popular with everyone, and tensions did arise. partly for this reason, the distinction between operational and research sections was largely eliminated by the early 1990s. this move not only improved morale, it also led to a cross - fertilization of ideas that improved the quality of both research and policy analysis. researchers actively engaging in policy analysis and participating in federal open market committee preparations better understand the issues facing policymakers and can target their efforts. on occasion - rare, i suspect - research economists actually benefit from the ideas of the policymakers. they also come to appreciate that policymakers need to hear sensible stories in clear english about the concepts being presented so that the policymakers in turn can explain understandably to the public why they are following a particular strategy. getting some researchers to write in english has proved daunting, and too often, the policymakers themselves have not lived up to their side of the bargain. the engagement of researchers in the policy process has served to remind them that social welfare is not necessarily enhanced by pursuing only academically fashionable topics. in fact, board staff, like monks in the middle ages, kept policy research alive through the dark night that initially settled on academic analysis of monetary policy following the lucas critique and real