|
on Central Banking |
| By: | William Barnett (Department of Economics, The University of Kansas); ; |
| Abstract: | An independent institute for monetary statistics is needed in the United States, says William Barnett in paper to appear in the journal, Central Banking. Expanded Congressional audit would be a second best alternative, but would not fully address the needs and would carry risks. |
| Keywords: | Central banking, Federal Reserve, data institute, monetary aggregation, monetary policy, audit, GAO. |
| JEL: | C82 E01 E41 E50 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201001&r=cba |
| By: | Athanasios Orphanides; Min Wei |
| Abstract: | We explore the role of evolving beliefs regarding the structure of the macroeconomy in improving our understanding of the term structure of interest rates within the context of a simple macro-finance model. Using quarterly vintages of real-time data and survey forecasts for the United States over the past 40 years, we show that a recursively estimated VAR on real GDP growth, inflation and the nominal short-term interest generates predictions that are more consistent with survey forecasts than a benchmark fixed-coefficient counterpart. We then estimate a simple term structure model under the assumption that the investors' risk attitude is driven by near-term expectations of the three state variables. When we allow for evolving beliefs about the macroeconomy, the resulting term structure model provides a better fit to the cross section of yields than the benchmark model, especially at longer maturities, and exhibits better performance in out-of-sample predictions of future yield movements. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-01&r=cba |
| By: | Takatoshi Ito |
| Abstract: | Japan suffered a very high inflation rate in 1973-74. The CPI inflation rate rose to near 30% in 1974, the highest rate in the postwar Japanese history after the chaotic hyperinflation following the end of the Second World War. Traditionally, the oil crisis is blamed for the 1973-74 high inflation. However, due to monetary policy decisions in 1972-73, the inflation rate had already exceeded 10% before the onset of the oil crisis in October 1973. These decisions include the interest rate cut of June 1972 and the interest rate hike of April 1973, which in retrospect proved too small. Concern about the rapid yen appreciation produced political pressure on the Bank of Japan to continue easing. The Bank of Japan came out of the Great Inflation of 1973 with a stronger voice. The Bank successfully argued that its recommendation to tighten monetary policy should not be overruled or the high inflation would be repeated. By this logic, the Bank of Japan obtained /de facto/ independence after 1975. When faced with the next economic recovery in 1979, again accompanied by oil price increases, the Bank of Japan was able to tighten monetary policy and to contain the inflation rate under 10 percent. The interest rate in the 1972-75 period was well below, by as much as 25 percentage points in 1973, the interest rate suggested by a modified monthly Taylor rule regression. |
| JEL: | E31 E58 N15 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15726&r=cba |
| By: | Tobias Adrian; Emanuel Moench; Hyun Song Shin |
| Abstract: | The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries' balance sheets. The spare capacity of their balance sheets determines the intermediaries' risk appetite, which in turn determines the real projects that receive funding and, hence, the supply of credit. Monetary policy affects risk appetite by changing the ability of intermediaries to leverage their capital. We estimate the time-varying risk appetite of financial intermediaries for the United States, Germany, the United Kingdom, and Japan, and study the joint dynamics of risk appetite using macroeconomic aggregates for the United States. We argue that risk appetite is an important indicator of monetary conditions. |
| Keywords: | Monetary policy ; Intermediation (Finance) ; Risk ; Capital market ; Credit |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:428&r=cba |
| By: | Frankel, Jeffrey (Harvard University); Xie, Daniel (Peterson Institute for International Economics, Washington, DC) |
| Abstract: | A new technique for estimating countries' de facto exchange rate regimes synthesizes two approaches. One approach estimates the implicit de facto basket weights in an OLS regression of the local currency value rate against major currency values. Here the hypothesis is a basket peg with little flexibility. The second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up. Here the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly substantial degree of exchange rate flexibility around that anchor. It is important to have available a technique that can cover both dimensions: inferring anchor weights and the flexibility parameter. We test the synthesis technique on a variety of fixers, floaters, and basket peggers. We find that real world data demand a statistical technique that allows parameters and regimes to shift frequently. Accordingly we here take the next step in estimation of de facto exchange rate regimes: endogenous estimation of parameter breakpoints, following Bai and Perron. |
| JEL: | F31 F41 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp10-003&r=cba |
| By: | Berge, Travis J. (University of California, Davis); Jorda, Oscar (University of California, Davis) |
| Abstract: | The Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research provides a historical chronology of business cycle turning points. This paper investigates three central aspects about this chronology: (1) How skillful is the BCDC in classifying economic activity into expansions and recessions? (2) Which indices of business conditions best capture the current but unobservable state of the business cycle? And (3) Which indicators predict future turning points best and at what horizons? We answer each of these questions in detail with methods novel to economics designed to assess classification ability. In the process we clarify several important features of business cycle phenomena. |
| JEL: | C14 E32 E37 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ucdeco:09-18&r=cba |
| By: | Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró |
| Abstract: | We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems. |
| Keywords: | Banking Integration, Co-movement, Fluctuations, Financial Legislation |
| JEL: | E32 F15 F36 G21 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1005&r=cba |
| By: | Ester Faia; Wolfgang Lechthaler; Christian Merkl |
| Abstract: | Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically a currency area calibrated on the EMU) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cut and hiring subsidies deliver larger multipliers as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets |
| Keywords: | Fiscal multipliers, fiscal packages, labour market frictions |
| JEL: | E62 H30 J20 H20 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1592&r=cba |
| By: | Andres Frick (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Graff (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jochen Hartwig (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction intensified. In this paper we argue that the information set of the public has been distorted through the significant slant in the media. Employing an unique dataset for Germany, we provide evidence that media reporting has a statistically significant and economically meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover. |
| Keywords: | Anti-cyclical fiscal policy, international, simulations, multiplier, free-riding |
| JEL: | E17 E32 E62 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-253&r=cba |
| By: | Williamson, Stephen |
| Abstract: | A model of monetary exchange with private financial intermediation is constructed. Claims on financial intermedaries of two types are traded in transactions: circulating notes and deposits. There can be a role for the government in supplying liqudity, and level changes in the money supply accomplished through open market operations can be nonneutral. A Friedman rule is suboptimal, due to costs of maintaining the stock of currency. The model is used to address some issues related to current monetary policy in the United States. |
| Keywords: | Monetary policy; financial intermediation; financial crisis |
| JEL: | E5 E4 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20692&r=cba |
| By: | Morten L. Bech; Elizabeth Klee |
| Abstract: | To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Federal Open Market Committee. In response, the Federal Reserve revised its operational framework for implementing monetary policy and began to pay interest on reserve balances in an attempt to provide a floor for the federal funds rate. Nevertheless, following the policy change, the effective federal funds rate remained below not only the target but also the rate paid on reserve balances. We develop a model to explain this phenomenon and use data from the federal funds market to evaluate it empirically. In turn, we show how successful the Federal Reserve may be in raising the federal funds rate even in an environment with substantial reserve balances. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-07&r=cba |
| By: | Linda S. Goldberg; Craig Kennedy; Jason Miu |
| Abstract: | Following a scarcity of dollar funding available internationally to financial institutions, in December 2007 the Federal Reserve began to establish or expand Temporary Reciprocal Currency Arrangements with fourteen other central banks. These central banks had the capacity to use the swap facilities to provide dollar liquidity to institutions in their jurisdictions. This paper presents the developments in the dollar swap facilities through the end of 2009. The facilities were a response to dollar funding shortages outside the United States and were effective at making dollars more broadly available to financial institutions overseas during a period of market dysfunction. Formal research, as well as more descriptive accounts, suggests that the dollar swap lines among central banks were effective at reducing the dollar funding pressures abroad and the stresses in money markets. While these findings are compelling, it is still difficult to draw definitive lessons on particular facilities given the numerous changes over time in market conditions and policy responses. |
| Keywords: | Banks and banking, Central ; Swaps (Finance) ; Foreign exchange ; Dollar, American ; Liquidity (Economics) ; Currency convertibility ; Federal Reserve System |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:429&r=cba |
| By: | Javier Andrés (Universidad de Valencia); Óscar Arce (CNMV); Carlos Thomas (Banco de España) |
| Abstract: | We analyze optimal monetary policy in a model with two distinct financial frictions. First, borrowing is subject to collateral constraints. Second, credit flows are intermediated by monopolistically competitive banks, thus giving rise to endogenous lending spreads. We show that, up to a second order approximation, welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the consumption gap between constrained and unconstrained agents, and the distribution of the collateralizable asset between both groups. Following both financial and non-financial shocks, the optimal monetary policy commitment implies a short-run trade-off between stabilization goals. Such policy tradeoffs become amplified as banking competition increases, due to the fall in lending spreads and the resulting increase in financial leveraging. |
| Keywords: | banking competition, lending spreads, collateral constraints, monetary policy, linear-quadratic method |
| JEL: | E32 E52 G10 G21 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1001&r=cba |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | The global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both originate in the combination of economic policies adopted by the two key economies, the US and China. Global financial markets served as a transmission belt, both during the boom as during the bust. In the US, the interaction among the Fed's monetary stance, global real interest rates, distorted incentives in credit markets, and financial innovation created the mix of conditions which first drove growth, but then made the US the epicenter of the global financial crisis. Exchange rate and other economic policies followed by emerging markets such as China and the oil-exporting countries contributed to the US ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble during the upswing. But we find that the key drivers of asset prices are global liquidity conditions. Central banks flooded the markets with ample liquidity. Mopping up this excess liquidity will be one major task for central banks worldwide, which needs to be done in a coordinated fashion. Moreover, our analysis has shown that liquidity will first show up in asset price inflation and only later in consumer goods inflation. This renders it difficult for central bank to exit from their current very expansive monetary policy stance if they continue to focus only on price stability. |
| Keywords: | Asset prices, China, current account adjustment, global liquidity, oil prices,<br /> savings glut, monetary policy, policy coordination |
| JEL: | E21 E43 E52 F32 F42 Q43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp973&r=cba |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | We assess differences that emerge in Taylor rule estimations for the Fed and the ECB before and after the start of the subprime crisis. For this purpose, we apply an explicit estimate of the equilibrium real interest rate and of potential output in order to account for variations within these variables over time. We argue that measures of money and credit growth, interest rate spreads and asset price inflation should be added to the classical Taylor rule because these variables are proxies of a change in the equilibrium interest rate and are, thus, also ikely to have played a major role in setting policy rates during the crisis. Our empirical results gained from a state-space model and GMM estimations reveal that, as far as the Fed is concerned, the impact of consumer price inflation, and money and credit growth turns negative during the crisis while the sign of the asset price inflation coefficient turns positive. Thus we are able to establish significant differences in the parameters of the reaction functions of the Fed before and after the start of the subprime crisis. In case of the ECB, there is no evidence of a change in signs. Instead, the positive reaction to credit growth, consumer and house price inflation becomes even stronger than before. Moreover we find evidence of a less inertial policy of both the Fed and the ECB during the crisis. |
| Keywords: | Subprime crisis, Federal Reserve, European Central Bank, equilibrium real interest rate, Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp972&r=cba |
| By: | Ansgar Belke; Ingo G. Bordon; Torben W. Hendricks |
| Abstract: | This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fits with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a significant monetary transmission process from global liquidity to other macro variables such as goods prices. We find further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus inflation. Given this clear empirical pattern it appears justified to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current financial crisis, if not possibly more. |
| Keywords: | Commodity prices, cointegration, CVAR analysis, global liquidity, inflation, international spillovers |
| JEL: | E31 E52 C32 F42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp971&r=cba |
| By: | Joerg Bibow |
| Abstract: | This paper investigates the United States dollar's role as the international currency of choice as a key contributing factor in critical global developments that led to the crisis of 2007-09, and considers the future role of the dollar as the global economy emerges from that crisis. It is argued that the dollar is likely to retain its hegemonic status for a few more decades, but that United States spending powered by public rather than private debt would provide a more sustainable motor for global growth. In the process, the "Bretton Woods II" regime depicted by Dooley, Folkerts-Landau, and Garber (2003) as sustainable despite featuring persistent U.S. current account deficits may turn into a "Bretton Woods III" regime that sees U.S. fiscal policy and public debt as "minding the store" in maintaining U.S. and global growth. |
| Keywords: | Reserve Currency; Global Monetary Order; Global Financial Crisis |
| JEL: | E12 E61 E62 F02 F33 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_584&r=cba |
| By: | Tierney, Heather L.R. |
| Abstract: | This paper tracks data revisions in the Personal Consumption Expenditure using the exclusions-from-core inflation persistence model. Keeping the number of observations the same, the regression parameters of earlier vintages of real-time data, beginning with vintage 1996:Q1, are tested for coincidence against the regression parameters of the last vintage of real-time data used in this paper, which is vintage 2008:Q2 in a parametric and two nonparametric frameworks. The effects of data revisions are not detectable in the vast majority of cases in the parametric model, but the flexibility of the two nonparametric models is able to utilize the data revisions. |
| Keywords: | Real-Time Data; Inflation Persistence; Nonparametrics; Monetary Policy; In-Sample Forecasting |
| JEL: | C53 C14 E52 |
| Date: | 2010–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20625&r=cba |
| By: | Inoue, Takeshi; Hamori, Shigeyuki |
| Abstract: | This study empirically analyzes the sources of the exchange rate fluctuations in India by employing the structural VAR model. The VAR system consists of three variables, i.e., the nominal exchange rate, the real exchange rate, and the relative output of India and a foreign country. Consistent with most previous studies, the empirical evidence demonstrates that real shocks are the main drives of the fluctuations in real and nominal exchange rates, indicating that the central bank cannot maintain the real exchange rate at its desired level over time. |
| Keywords: | Exchange Rate, India, RBI, SVAR, India, Foreign Exchange |
| JEL: | E31 F31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper216&r=cba |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(d) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively. |
| Keywords: | Fractional integration, Long memory, Exchange rates, Volatility |
| JEL: | C22 O40 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp975&r=cba |
| By: | Christian List (London School of Economics); Ben Polak (Cowles Foundation, Yale University) |
| Abstract: | This introduces the symposium on judgment aggregation. The theory of judgment aggregation asks how several individuals' judgments on some logically connected propositions can be aggregated into consistent collective judgments. The aim of this introduction is to show how ideas from the familiar theory of preference aggregation can be extended to this more general case. We first translate a proof of Arrow's impossibility theorem into the new setting, so as to motivate some of the central concepts and conditions leading to analogous impossibilities, as discussed in the symposium. We then consider each of four possible escape-routes explored in the symposium. |
| Keywords: | Judgment aggregation, Arrow's theorem, Escape routes |
| JEL: | D70 D71 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1753&r=cba |
| By: | Michael J. Lamla (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Sarah M. Lein (Swiss National Bank, Zurich) |
| Abstract: | In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction intensified. In this paper we argue that the information set of the public has been distorted through the significant slant in the media. Employing an unique dataset for Germany, we provide evidence that media reporting has a statistically significant and economically meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover. |
| Keywords: | Monetary policy, inflation perceptions, media coverage, media bias |
| JEL: | E52 D83 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-254&r=cba |
| By: | Boriss Siliverstovs; Konstantin A. Kholodilin |
| Abstract: | This study utilizes the dynamic factor model of Giannone et al. (2008) in order to make now-/forecasts of GDP quarter-on-quarter growth rates in Switzerland. It also assesses the informational content of macroeconomic data releases for forecasting of the Swiss GDP. We find that the factor model offers a substantial improvement in forecast accuracy of GDP growth rates compared to a benchmark naive constant-growth model at all forecast horizons and at all data vintages. The largest forecast accuracy is achieved when GDP nowcasts for an actual quarter are made about three months ahead of the official data release. We also document that both business tendency surveys as well as stock market indices possess the largest informational content for GDP forecasting although their ranking depends on the underlying transformation of monthly indicators from which the common factors are extracted. |
| Keywords: | Business tendency surveys, Forecasting, Nowcasting, Real-time data, Dynamic factor model |
| JEL: | C53 E37 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp970&r=cba |
| By: | Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Konstantin A. Kholodilin (DIW Berlin, Germany) |
| Abstract: | This study utilizes the dynamic factor model of Giannone et al. (2008) in order to make now-/forecasts of GDP quarter-on-quarter growth rates in Switzerland. It also assesses the informational content of macroeconomic data releases for forecasting of the Swiss GDP. We find that the factor model offers a substantial improvement in forecast accuracy of GDP growth rates compared to a benchmark naive constant-growth model at all forecast horizons and at all data vintages. The largest forecast accuracy is achieved when GDP nowcasts for an actual quarter are made about three months ahead of the official data release. We also document that both business tendency surveys as well as stock market indices possess the largest informational content for GDP forecasting although their ranking depends on the underlying transformation of monthly indicators from which the common factors are extracted. |
| Keywords: | Business tendency surveys, Forecasting, Nowcasting, Real-time data, Dynamic factor model |
| JEL: | C53 E37 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-251&r=cba |
| By: | Nikolaos Antonakakis (Department of Economics, University of Strathclyde) |
| Abstract: | This paper assesses the impact of official central bank interventions (CBIs) on exchange rate returns, their volatility and bilateral correlations. By exploiting the recent publication of intervention data by the Bank of England, this study is able to investigate interventions by a total number of four central banks, while the previous studies have been limited to three (the Federal Reserve, Bundesbank and Bank of Japan). The results of the existing literature are reappraised and refined. In particular, unilateral CBI is found to be more successful than coordinated CBI. The likely implications of these ndings are then discussed. |
| Keywords: | Central bank interventions; Foreign exchange; Multivariate GARCH; Conditional correlations |
| JEL: | C32 E58 F31 G15 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1002&r=cba |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Alan Kabundi (Department of Economics and Econometrics, University of Johannesburg); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas) |
| Abstract: | We employ a 10-variable dynamic structural general equilibrium model to forecast the US real house price index as well as its turning point in 2006:Q2. We also examine various Bayesian and classical time-series models in our forecasting exercise to compare to the dynamic stochastic general equilibrium model, estimated using Bayesian methods. In addition to standard vector-autoregressive and Bayesian vector autoregressive models, we also include the information content of either 10 or 120 quarterly series in some models to capture the influence of fundamentals. We consider two approaches for including information from large data sets – extracting common factors (principle components) in a Factor-Augmented Vector Autoregressive or Factor-Augmented Bayesian Vector Autoregressive models or Bayesian shrinkage in a large-scale Bayesian Vector Autoregressive models. We compare the out-of-sample forecast performance of the alternative models, using the average root mean squared error for the forecasts. We find that the small-scale Bayesian-shrinkage model (10 variables) outperforms the other models, including the large-scale Bayesian-shrinkage model (120 variables). Finally, we use each model to forecast the turning point in 2006:Q2, using the estimated model through 2005:Q2. Only the dynamic stochastic general equilibrium model actually forecasts a turning point with any accuracy, suggesting that attention to developing forward-looking microfounded dynamic stochastic general equilibrium models of the housing market, over and above fundamentals, proves crucial in forecasting turning points. |
| Keywords: | compensating variation, nonlinear income effects, discrete choice |
| JEL: | Q51 R21 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nlv:wpaper:1001&r=cba |
| By: | Paul Ramskogler (Department of Economics, Vienna University of Economics & B.A.) |
| Abstract: | Before the introduction of the Euro many observers had expected an increase of inflationary pressures due to a de-coordination-shock to national wage bargaining. However, if anything systematically happened after the introduction of the Euro wage restraint increased (Posen and Gould 2006). A possible explanation for this finding is that a system of pattern bargaining has emerged with Germany figuring as a “centre of gravity” for European wage bargains (Traxler et al. 2008, Traxler and Brandl 2009). This paper studies wage and nominal unit labour cost spill-overs for the EMU for a panel over 13 manufacturing sectors from 1992-2005 and quantifies the effects of different countries. It turns out that there are strong interdependencies across EMU-members with regard to nominal wage growth. Indeed, a leading role accrues to Germany whose wage developments are twice as influential as those of the next important countries. Remarkably, the strong interdependence of wage growth is not reflected with regard to unit labour costs. Here, only the development in a core group composed of Austria, France, Germany and the Netherlands, is bound to each other. The development of nominal unit labour costs in other countries is largely independent from each other and especially from this core group. |
| JEL: | L16 J31 J52 F42 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp130&r=cba |
| By: | Strid, Ingvar (Dept. of Economic Statistics, Stockholm School of Economics); Giordani, Paolo (Research division, Sveriges Riksbank); Kohn, Robert (Australian School of Business, University of New South Wales) |
| Abstract: | Bayesian inference for DSGE models is typically carried out by single block random walk Metropolis, involving very high computing costs. This paper combines two features, adaptive independent Metropolis-Hastings and parallelisation, to achieve large computational gains in DSGE model estimation. The history of the draws is used to continuously improve a t-copula proposal distribution, and an adaptive random walk step is inserted at predetermined intervals to escape difficult points. In linear estimation applications to a medium scale (23 parameters) and a large scale (51 parameters) DSGE model, the computing time per independent draw is reduced by 85% and 65-75% respectively. In a stylised nonlinear estimation example (13 parameters) the reduction is 80%. The sampler is also better suited to parallelisation than random walk Metropolis or blocking strategies, so that the effective computational gains, i.e. the reduction in wall-clock time per independent equivalent draw, can potentially be much larger. |
| Keywords: | Markov Chain Monte Carlo (MCMC); Adaptive Metropolis-Hastings; Parallel algorithm; DSGE model; Copula |
| JEL: | C11 C63 |
| Date: | 2010–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0724&r=cba |
| By: | Alain Chateauneuf (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Thibault Gajdos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CERSES - Centre de recherche sens, ethique, société - CNRS : UMR8137 - Université Paris Descartes - Paris V); Jean-Yves Jaffray (LIP6 - Laboratoire d'Informatique de Paris 6 - CNRS : UMR7606 - Université Pierre et Marie Curie - Paris VI) |
| Abstract: | We study the Full Bayesian Updating rule for convex capacities. Following a route suggested by Jaffray (1992), we define some properties one may want to impose on the updating process, and identify the classes of (convex and strictly positive) capacities that satisfy these properties for the Full Bayesian updating rule. |
| Date: | 2010–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-00455779_v1&r=cba |
| By: | J. Wiesinger; D. Sornette; J. Satinover |
| Abstract: | Using virtual stock markets with artificial interacting software investors, aka agent-based models (ABMs), we present a method to reverse engineer real-world financial time series. We model financial markets as made of a large number of interacting boundedly rational agents. By optimizing the similarity between the actual data and that generated by the reconstructed virtual stock market, we obtain parameters and strategies, which reveal some of the inner workings of the target stock market. We validate our approach by out-of-sample predictions of directional moves of the Nasdaq Composite Index. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1002.2171&r=cba |
| By: | Aghion, P.; Howitt, P. |
| Abstract: | This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucllon:http://eprints.ucl.ac.uk/17829/&r=cba |
| By: | David Colander |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:1004&r=cba |
| By: | David Colander; Richard P.F. Holt; J. Barkley Rosser |
| Abstract: | This article argues that the neoclassical era in economics has ended and is being replaced by a new era. What best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era. The complexity era has not arrived through a revolution. Instead, it has evolved out of the many strains of neoclassical work, along with work done by less orthodox mainstream and heterodox economists. It is only in its beginning stages. The article discusses the work that is forming the foundation of the complexity era, and how that work will likely change the way in which we understand economic phenomena and the economics profession. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:1001&r=cba |
| By: | Clark, Gregory (University of California, Davis) |
| Abstract: | Estimates are developed of the major macroeconomic aggregates--wages, land rents, interest rates, prices, factor shares, sectoral shares in output and employment, and real wages--for England by decade between 1209 and 2008. The efficiency of the economy 1209-2008 is also estimated. One finding is that the growth of real wages in the Industrial Revolution era and beyond was faster than the growth of output per person. Indeed until recently the greatest recipient of modern growth in England has been unskilled workers. The data also creates a number of puzzles, the principle one being the very high levels of output and efficiency estimated for England in the medieval era. This data is thus inconsistent with the general notion that there was a period of Smithian growth between 1300 and 1800 which preceded the Industrial Revolution, as expressed in such recent works as De Vries (2008). |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ucdeco:09-19&r=cba |
| By: | Andrés Alvarez |
| Abstract: | This paper presents Léon Walras and Augustin Cournot views on monetary regulation. Important differences can be found in their views about the convenience of the issuing of paper money and fiat money in general. Whereas Walras is against bank notes, even if coming from a central bank, Cournot has a moderate position. He accepts the need for bank notes even without a strict adjustment to metal reserves. It can be ascertained that Cournot believes discretionary monetary regulation is convenient and acceptable, while Walras believes the only acceptable monetary system is one based exclusively on the stability of the value of money under a monetary rule following the strict equivalence between metallic reserves and a pure medium of exchange form of money. This paper shows Cournot’s ability to understand more clearly than Walras the evolution of the monetary system of his days. Whereas Walras is trying to guarantee the coherence of his pure theory with his applied theory, and he is then unable to accept the evolution toward a monetary system based on fiat money and he proposes very rigid and complex system of quasi-bimetallic circulation where banks are simple mediators between entrepreneurs and savings. |
| Date: | 2010–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:col:000178:006703&r=cba |