HHH student team awarded for capstone project on Humphrey-Hawkins Act for MPLS Fed Res Bank

Prof. Kleiner with Jargalmaa Erdenemandekh (R) and Wenchen Wang (L)

Humphrey School of Public Affairs graduate students Wenchen Wang (MPP '17), Jargalmaa Erdenemandakh (MPP ’17), Lawrence Karongo (MPP ’17), William Dumas (MPP ’17), Yun Taek Oh (MPP ’18), Derek Teed (MPP ’17) and Jonathan Watkins (MPP ’17) completed their final capstone research project entitled “The Origins and Consequences of Humphrey-Hawkins Act”. The paper examines the influence of the last piece of legislation coauthored by Senator Hubert H. Humphrey of Minnesota. It brings to the forefront an important policy issue expanded and furthered what we know about a key piece of federal legislation as a Humphrey School research paper. Professor Morris Kleiner and Senior Fellow Art Rolnick served as the Humphrey School advisers for the study.

The study was completed for the Federal Reserve Bank of Minneapolis and presented at an all Federal Reserve Bank of Minneapolis seminar by the entire research team. Also, Jargalmaa Erdenemandakh and Wenchen Wang presented the result of the paper at IPID Student Research Conference 2017. Moreover, the paper has won the 2017 Lloyd B. Short Award for Best Capstone Paper of the Year, and it is now under consideration for publication at a Federal Reserve Bank of Minneapolis Public Affairs journal or magazine. Also the study has received a wide distribution at the Humphrey School.   Link to the paper here: http://conservancy.umn.edu/handle/11299/183472

The paper focused on the Full Employment and Balanced Growth Act of 1978, commonly known as the Humphrey-Hawkins Act, that shifted U.S. economic policy from a focus on price stability to a dual mandate which added full employment as a goal. The Act changed the Employment Act of 1946 to include specific numeric goals for inflation and employment while maintaining one could not be sacrificed to achieve the other. This paper uses several statistical analysis methods to determine if there is a quantifiable effect on price stability or employment as a consequence of the passage of of the Humphrey Hawkins Act along with discussions of any changes in Federal Reserve Bank behavior. Further comparisons are made to peer countries that have central banking with single mandates along with one country with a dual mandate. The Humphrey-Hawkins Act attempted to move U.S. economic policy onto a dual mandate, that is, to focus on both improving employment and lowering inflation. There was no statistical impact found for the U.S. or compared to other countries. While Congressional testimony can be viewed as a net positive, it is unclear if any policy changes were made.

Quantitatively the students used newly available data from the Bureau of Economic Analysis, Bureau of Labor Statistics, the Organization for Economic Cooperation and Development. This was among the first studies to do so on this issue. The methods used two time-series models to analyze its impact over time: vector auto-regression (VAR) time series model and a dynamic time series model. The analysis tested two common theories in macroeconomics, the Phillips Curve, which hypothesizes a relationship between wage change and unemployment and the Taylor Rule which examines the how the Federal Reserve Bank rule determines inflation. In addition, the paper explored how the 9th District of the Federal Reserve Bank which encompasses the Upper Midwest may be influenced by changes in monetary policy.

The Humphrey-Hawkins Act amended the previous legislation in order to bring a stronger focus on policy to help rising unemployment while not sacrificing price stability goals. The Act sought greater monetary and fiscal policy coordination from the Federal Reserve Bank and executive branch to affect change during the difficult economic conditions of the early 1970s and beyond.

Authors: Erdenemandakh, Jargalmaa

Authors: Wang, Wenchen

Authors: Dumas, William

Authors: Karongo, Lawrence

Authors: Taek Oh, Yun

Authors: Teed, Derek

Authors: Watkins, Jonathan

Title: Origins and Consequences of the Humphrey-Hawkins Act of 1978

Date Published: 2016-12-20

Type: Thesis or Dissertation

Keywords: Humphrey-Hawkins Act, monetary policy, dual mandate monetary policy, Federal Reserve Bank of Minneapolis, federal funds rate,unemployment, price stability,Morris Kleiner William Dumas, Jargalmaa Erdenemandakh, Lawrence Karongo,Yun Taek Oh, Derek Teed, Wenchen Wang Jonathan Watkins.

Abstract:The Full Employment and Balanced Growth Act of 1978, commonly known as the Humphrey-Hawkins Act shifted U.S. economic policy from a focus on price stability to a dual mandate which added an employment goal. The Act emended the Employment Act of 1946 to include specific numeric goals for inflation and employment while maintaining the one

could not be sacrificed to achieve the other. This paper uses several statistical analysis methods to determine if there is a quantifiable effect on price stability or employment due to the passing of the Act along with discussion of any change in Fed behavior. Further comparisons are made to selected developed countries with central banking systems that have single mandates along with a compared dual mandate country. 

Sponsors: Federal Reserve Bank of Minneapolis and Professor Morris Kleiner from Humphrey School of Public Affairs