This paper documents changes in the cyclical behavior of nominal data series that appear after 1979:IIIQ, when the Federal Reserve implemented a policy to end the acceleration of inflation. Such changes were not apparent in real variables. A business cycle model with impulses to technology and a role for money is used to show how alternativ.e money supply rules ·are expected to affect observed business cycle facts. In this model, changes in the money supply rules have almost no effect on the cyclical behavior of real variables, yet have a significant impact on the cyclical nature of nominal variables. Computational experiments V{ith alternative policy rules suggest that the change in monetary policy in 1979 may account for the sort of instability observed in the U.S. data.

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If the central bank follows an interest rate rule, then inflation is likely to be persistent, even when prices are fully flexible. Any shock, whether persistent or not, may lead to inflation persistence. In equilibrium, the dynamics of inflation are determined by the evolution of the spread between the real interest rate and the central bank's target. Inflation persistence can be characterized by a vector autocorrelation function relating inflation and output. This article shows that a flexible-price, general-equilibrium business cycle model with money and a central bank using an interest rate target can account for such inflation persistence.

This article documents the massive increase in trading in commodity derivatives over the past decade-growth that far outstrips the growth in commodity production and the need for derivatives to hedge risk by commercial producers and users of commodities. During the past decade, many institutional portfolio managers added commodity derivatives as an asset class to their portfolios. This addition was part of a larger shift in portfolio strategy away from traditional equity investment and toward derivatives based on assets such as real estate and commodities. Institutional investors' use of commodity futures to hedge against stock market risk is a relatively recent phenomenon. Trading in commodity derivatives also increased along with the rapid expansion of trading in all derivative markets. This trading was directly related to the search for higher yields in a low interest rate environment. The growth was both in organized exchanges and over-thecounter (OTC) trading, but the gross market value of OTC trading was an order of magnitude greater. This growth is important to note because a critical factor in the recent crisis was counterparty failure in OTC trading of mortgage derivatives. (JEL G120, G130, G180)