Editors' Summary (Editorial‪)‬

THE BROOKING'S PANEL ON Economic Activity held its seventy-eighth conference in Washington, D.C., on September 9 and 10, 2004. This issue of Brookings Papers on Economic Activity includes the papers and discussions presented at the conference. The first paper evaluates unconventional measures available to monetary policymakers for stimulating the economy when interest rates are already near zero, a situation that may arise with price stability or negative inflation. The second paper presents empirical evidence on the effects of taxes, federal spending, and deficits on national saving, interest rates, and growth. The third paper explores the impacts on U.S. employment in recent years from conventional foreign trade in goods and from the rise in offshoring of service jobs. The fourth paper examines the effect of tax changes, such as those passed since 2000, on business capital formation. CENTRAL BANKS USUALLY implement monetary policy by setting the short-term nominal interest rate that the bank controls, such as the federal funds rate in the United States. However, the success of many industrial countries over the years in reducing inflation and, consequently, average nominal interest rates has increased the likelihood that, during a recession, the policy rate will approach its lower bound of zero. When rates are at or near zero, a central bank can no longer stimulate aggregate demand by further rate reductions and must rely instead on "nonstandard" policy alternatives. An extensive literature examines these alternatives, but for the most part from a theoretical or historical perspective. Few studies have presented empirical evidence on their potential effectiveness in modern economies. Such evidence not only would help central banks plan for the contingency of the policy rate approaching zero, but also would bear directly on the choice of the appropriate inflation objective in normal times: the greater the confidence of central bankers that tools exist to help the economy escape the liquidity trap that occurs at the zero bound, the less need there is to maintain an inflation "'buffer." Hence evidence of effective alternative policies would bolster the argument for a lower inflation objective. In the first article of this issue, Ben Bernanke, Vincent Reinhart, and Brian Sack apply the tools of modern empirical finance to the recent experiences of the United States and Japan to look for such evidence.