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on Monetary Economics |
| By: | Linda S. Goldberg; Michael W. Klein |
| Abstract: | The perceptions of a central bank's inflation aversion may reflect institutional structure or, more dynamically, the history of its policy decisions. In this paper, we present a novel empirical framework that uses high-frequency data to test for persistent variation in market perceptions of central bank inflation aversion. The first years of the European Central Bank (ECB) provide a natural experiment for this model. Tests of the effect of news announcements on the slope of yield curves in the euro area and on the euro-dollar exchange rate suggest that the market's perception of the policy stance of the ECB evolved significantly during the first six years of the Bank's operation, with a belief in its inflation aversion increasing in the wake of its monetary tightening. In contrast, tests based on the response of the slope of the U.S. yield curve to news offer no comparable evidence of any change in market perceptions of the inflation aversion of the Federal Reserve. |
| Keywords: | Banks and banking, Central ; Inflation (Finance) ; Monetary policy ; European Central Bank |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:231&r=mon |
| By: | Sharon Kozicki; Peter Tinsley |
| Abstract: | The sensitivity of bond rates to macro variables appears to vary both over time and over forecast horizons. The latter may be due to differences in forward rate term premiums and in bond trader perceptions of anticipated policy responses at different forecast horizons. Determinacy of policy transmission through bond rates requires a lower bound on the average responsiveness of term premiums and anticipated policy responses to inflation. |
| Keywords: | Monetary policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp05-06&r=mon |
| By: | Michael Woodford |
| Abstract: | A notable change in central banking over the past 15 years has been a world-wide movement toward increased communication by central banks about their policy decisions, the targets that they seek to achieve through those decisions, and the central bank's view of the economy's likely future evolution. This paper considers the role of such communication in the successful conduct of monetary policy, with a particular emphasis on an issue that remains controversial: to what extent is it desirable for central banks to comment on the likely path of short-term interest rates? After reviewing general arguments for and against central-bank transparency, the paper considers two specific contexts in which central banks have been forced to consider how much they are willing to say about the future path of interest rates. The first is the experiment with policy signaling by the FOMC in the U.S., using the statement released following each Committee meeting, since August 2003. The second is the need to make some assumption about future policy when producing the projections (for future inflation and other variables) that are central to inflation-forecast targeting procedures, of the kind used by the Bank of England, the Swedish Riksbank, the Reserve Bank of New Zealand, and others. In both cases, it is argued that increased willingness to share the central bank's own assumptions about future policy with the public has increased the predictability of policy, in ways that are likely to have improved central bank's ability to achieve their stabilization objectives. |
| JEL: | E52 E58 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11898&r=mon |
| By: | Leonardo Gambacorta (Bank of Italy, Economic Research Department); Simonetta Iannotti (Bank of Italy, Supervision and Regulation Department) |
| Abstract: | This paper examines the velocity and asymmetry in the response of bank interest rates to monetary policy shocks. Using an Asymmetric Vector Error Correction Model (AVECM), it analyses the pass-through of changes in the money market rates to retail bank interest rates in Italy in the period 1985-2002. The main results of the paper are: 1) the speed in adjustment of bank interest rates to monetary policy changes have significantly increased after the introduction of the 1993 Consolidated Law on Banking; 2) interest rate adjustment, in response to positive and negative shocks, are asymmetric in the short run, but not in the long run; 3) banks adjust their loan (deposit) rate at a faster rate during period of monetary tightening (easing); 4) this asymmetry has almost vanished since the nineties. |
| Keywords: | monetary policy transmission, interest rates, asymmetries, liberalization |
| JEL: | E43 E44 E52 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_566_05&r=mon |
| By: | A. Hakan Kara |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0301&r=mon |
| By: | Athanasios Orphanides; John C. Williams |
| Abstract: | We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-51&r=mon |
| By: | Ricardo de O. Cavalcanti; Ed Nosal |
| Abstract: | In this paper, we present a simple random-matching model in which different seasons translate into different propensities to consume and produce. We find that the cyclical creation and destruction of money is beneficial for welfare under a wide variety of circumstances. Our model of seasons can be interpreted as providing support for the creation of the Federal Reserve System, with its mandate of supplying an elastic currency for the nation. |
| Keywords: | Monetary policy ; Money supply |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0511&r=mon |
| By: | Peter N. Ireland |
| Abstract: | This paper estimates a New Keynesian model to draw inferences about the behavior of the Federal Reserve’s unobserved inflation target. The results indicate that the target rose from 1- 1/4 percent in 1959 to over 8 percent in the mid-to-late 1970s before falling back below 2-1/2 percent in 2004. The results also provide some support for the hypothesis that over the entire postwar period, Federal Reserve policy has systematically translated short-run price pressures set off by supply-side shocks into more persistent movements in inflation itself, although considerable uncertainty remains about the true source of shifts in the inflation target. |
| Keywords: | Inflation (Finance) ; Monetary policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:05-13&r=mon |
| By: | William Whitesell |
| Abstract: | Most inflation-targeting central banks express their inflation objective in terms of a range for a single official inflation measure but generally have not clarified the meaning of the ranges and their implications for policy responses. In formulating policy, all central banks monitor multiple inflation indicators. This paper suggests an alternative approach to communicating an inflation goal: announcing point-values, rather than ranges, for a few key reference measures of inflation that are used in making policy. After reviewing and extending relevant theoretical and empirical studies, the paper argues that the alternative approach could more accurately reflect the concerns of policymakers and provide a better accountability structure for monetary policy performance. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-62&r=mon |
| By: | K. Azim Ozdemir; Paul Turner |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0412&r=mon |
| By: | Roc Armenter; Martin Bodenstein |
| Abstract: | We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus, the model can simultaneously account for the low and high inflation episodes in the United States. We carefully characterize the set of Markov equilibria along the parameter space and find our results to be robust, suggesting that expectation traps are more than just a theoretical curiosity. |
| Keywords: | Equilibrium (Economics) ; Inflation (Finance) ; Rational expectations (Economic theory) ; Monetary policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:229&r=mon |
| By: | Michael Woodford |
| Abstract: | The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. The proposed method offers a way of avoiding the assumption that the central bank can count on private-sector expectations coinciding precisely with whatever it plans to do, while at the same time also avoiding the equally unpalatable assumption that the central bank can precisely model private-sector learning and optimize in reliance upon a precise law of motion for expectations. The main qualitative conclusions of the rational-expectations analysis of optimal policy carry over to the weaker assumption of near-rational expectations. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed. |
| JEL: | D81 D84 E52 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11896&r=mon |
| By: | Melike Altinkemer |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0404&r=mon |
| By: | Mark A. Wynne |
| Abstract: | This paper provides an estimate of the measurement bias in the Harmonised Index of Consumer Prices (HICP) that the European Central Bank uses to define price stability in the euro area. The estimate is based on a comparison of the rate of increase in consumer prices as measured by the HICP and the responses to a question about recent changes in the cost of living on the European Commission’s monthly Harmonised Consumer Survey (HCS). I find that the HICP may overstate the true rate of inflation by about 1.0 to 1.5 percentage points a year. |
| Keywords: | Euro ; Inflation (Finance) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:05-09&r=mon |
| By: | Tommaso Monacelli; Jordi Galí |
| Abstract: | We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and analyze its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is implemented at the country level, through the choice of government spending level. The model incorporates country-specific shocks and nominal rigidities. Under our assumptions, the optimal monetary policy requires that inflation be stabilized at the union level. On the other hand, the relinquishment of an independent monetary policy, coupled with nominal price rigidities, generates a stabilization role for fiscal policy, one beyond the efficient provision of public goods. Interestingly, the stabilizing role for fiscal policy is shown to be desirable not only from the viewpoint of each individual country, but also from that of the union as a whole. In addition, our paper offers some insights on two aspects of policy design in currency unions: (i) the conditions for equilibrium determinacy and (ii) the effects of exogenous government spending variations. |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:300&r=mon |
| By: | K. Azim Ozdemir |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0507&r=mon |
| By: | Hakan Kara |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0415&r=mon |
| By: | Fabià Gumbau-Brisa |
| Abstract: | This paper looks at the implications of heterogeneous beliefs for inflation dynamics. Following a monetary policy shock, inflation peaks after output, is inertial, and can be characterized by a Hybrid Phillips Curve. It presents a novel channel through which systematic monetary policy can affect the degree of inflation persistence. It does so by altering the effective extent of strategic complementarities in pricing, and hence the role of higher-order expectations in the equilibrium. In particular, stronger inflation targeting reduces the impact of uncertainty on the economy and therefore the degree of inertia. It is possible to calibrate at around 25 percent the fraction of relevant information processed every period by the private sector. The imperfect common knowledge framework does not require any exogenous shocks to create heterogeneity. Despite the fact that prices can be adjusted at no cost in every period, there are nominal rigidities, and monetary policy has real effects. |
| Keywords: | Inflation (Finance) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:05-16&r=mon |
| By: | Fatih Ozatay |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0511&r=mon |
| By: | Roc Armenter; Martin Bodenstein |
| Abstract: | Lack of commitment in monetary policy leads to the well known Barro-Gordon inflation bias. In this paper, we argue that two phenomena associated with the time inconsistency problem have been overlooked in the exchange rate debate. We show that, absent commitment, independent monetary policy can also induce expectation traps-that is, welfare-ranked multiple equilibria-and perverse policy responses to real shocks-that is, an equilibrium policy response that is welfare inferior to policy inaction. Both possibilities imply higher macroeconomic volatility under flexible exchange rates than under fixed exchange rates. |
| Keywords: | Foreign exchange rates ; Equilibrium (Economics) ; Monetary policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:230&r=mon |
| By: | Troy Davig; Eric M. Leeper |
| Abstract: | Recurring change in a monetary policy function that maps endogenous variables into policy choices alters both the nature and the efficacy of the Taylor principle---the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation. A monetary policy process is a set of policy rules and a probability distribution over the rules. We derive restrictions on that process that satisfy a long-run Taylor principle and deliver unique equilibria in two standard models. A process can satisfy the Taylor principle in the long run, but deviate from it in the short run. The paper examines three empirically plausible processes to show that predictions of conventional models are sensitive to even small deviations from the assumption of constant-parameter policy rules. |
| JEL: | E52 E62 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11874&r=mon |
| By: | Charles T. Carlstrom; Timothy S. Fuerst |
| Abstract: | Recessions are associated with both rising oil prices and increases in the federal funds rate. Are recessions caused by the spikes in oil prices or by the sharp tightening of monetary policy? This paper discusses the difficulties in disentangling these two effects. |
| Keywords: | Petroleum products - Prices ; Monetary policy ; Business cycles |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0510&r=mon |
| By: | Ana Maria Herrera; Pinar Ozbay |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0501&r=mon |
| By: | Leonardo Bartolini; Spence Hilton; Alessandro Prati |
| Abstract: | We use transaction-level data and detailed modeling of the high-frequency behavior of federal funds-Eurodollar yield spreads to provide evidence of strong integration between the federal funds and Eurodollar markets, the two core components of the dollar money market. Our results contrast with previous research indicating that these two markets are segmented, showing them to be well integrated even at high (intraday) frequency. We document several patterns in the behavior of federal funds-Eurodollar spreads, including liquidity effects from trading volume on yield spreads' volatility. Our analysis supports the view that targeting federal funds rates alone is sufficient to stabilize rates in the (much larger) dollar money market as a whole. |
| Keywords: | Federal funds market (United States) ; Euro-dollar market ; Liquidity (Economics) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:227&r=mon |
| By: | Huberto M. Ennis |
| Abstract: | I study the effects of inflation on the purchasing behavior of buyers in an economy where money is essential for certain transactions (as in Lagos and Wright, 2005). A long-standing intuition in this subject is that when inflation increases, agents try to spend their money holdings more speedily. The standard framework fails to capture this kind of effect (Lagos and Rocheteau, 2005). I propose a simple modification of the model in which trading of goods and rebalancing of money holdings happen less frequently. In such a framework, I show that higher inflation induces buyers to search for transactions more intensively and buy goods of worse quality. The modification proposed also sheds new light on the connection between the search-theoretic and the inventory-theoretic models of money. |
| Keywords: | Inflation (Finance) ; Money |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:05-10&r=mon |
| By: | Cihan Yalcin; Spiros Bougheas; Paul Mizen |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0407&r=mon |
| By: | Gunther Schnabl (Tübingen University) |
| Abstract: | In 2005, the Bank of Russia has made three announcements that indicate an increasing role for the euro in the Russian exchange rate strategy. On February 4 2005 the Bank of Russia announced that it has started to stabilize the daily volatilities of the Russian ruble against a dollar- euro currency basket. While the announced weight of the euro was 10% (90% dollar) by then, the Bank of Russia increased this weight to currently 40% within ten months. Bank of Russia representatives have stressed the intention to increase the weight of the euro the Russian currency basket further up to 50% but without indicating a specific time horizon. Other statements of Bank of Russia representatives have stressed the rising role of euro as intervention and reserve currency. This paper reviews the recent trends in Russian exchange rate strategy with a focus on the role of the euro. |
| Keywords: | Words: Russia, Currency Basket, International Role of the Euro. |
| JEL: | F31 |
| Date: | 2005–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0512005&r=mon |
| By: | David C. Mills, Jr. |
| Abstract: | I explore alternative central bank policies for liquidity provision in a model of payments. I use a mechanism design approach so that agents' incentives to default are explicit and contingent on the credit policy designed. In the first policy, the central bank invests in costly enforcement and charges an interest rate to recover costs. I show that the second best solution is not distortionary. In the second policy, the central bank requires collateral. If collateral does not bear an opportunity cost, then the solution is first best. Otherwise, the second best is distortionary because collateral serves as a binding credit constraint. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-55&r=mon |
| By: | Ilker Domac; Kyle Peters; Yevgeny Yuzefovichî |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0304&r=mon |
| By: | Leslie McGranahan; Anna Paulson |
| Abstract: | We use data from the Consumer Expenditure Survey from 1980-2003 combined with item specific Consumer Price Index data to calculate monthly chain- weighted inflation measures for thirteen different demographic groups and for the overall urban population from 1981-2004. We find that the inflation experiences of the different groups are very highly correlated with and similar in magnitude to the inflation experiences of the overall urban population. Over the sample period, cumulative inflation for the groups ranged from 224% to 242% as compared to inflation for the overall population of 230%. The group with the largest deviation from overall inflation consists of households where the head or spouse is 65 or over. These households had cumulative inflation 5% higher than the average. We also find that the variability of inflation is higher for vulnerable populations and lower for advantaged populations. In particular, we calculate that the standard deviation of inflation declines with educational attainment. This is the result of higher expenditure shares among the less educated on necessities with more variable prices, including food and energy. However, this difference in variability is fairly modest. The inflation rate of the least educated is 3.0% more variable than inflation for all urban households. We conclude that inflation is principally an aggregate shock and that the CPI-U does a reasonable job of measuring the inflation experience of the demographic groups that we investigate. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-05-20&r=mon |
| By: | Fernando N. de Oliveira (IBMEC Business School - Rio de Janeiro and Central Bank of Brazil); Walter Novaes (PUC/RJ) |
| Abstract: | Between 1999 and 2002, Brazil's Central Bank sold expressive amounts of dollar indexed debt and foreign exchange swaps. This paper shows that in periods of high volatility of the exchange rate, first semester of 1999 and second semester of 2002, the Central Bank of Brazil increased the foreign exchange hedge, but the financial institutions used this to reduce their foreign exchange exposure. In contrast, increases in foreign hedge during periods of low volatility of the exchange rate were transferred to the productive sector. |
| Keywords: | foreign exchange swaps, central bank interventions, foreign exchange risk |
| JEL: | E58 E52 F31 |
| Date: | 2005–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ibr:dpaper:2005-13&r=mon |
| By: | Guillaume Rocheteau; Peter Rupert; Karl Shell; Randall Wright |
| Abstract: | We study general equilibrium with nonconvexities. In these economies there exist sunspot equilibria without the usual assumptions needed in convex economies, and they have good welfare properties. Moreover, in these equilibria, agents act as if they have quasi-linear utility. Hence wealth effects vanish. We use this to construct a new model of monetary exchange. As in Lagos-Wright, trade occurs in both centralized and decentralized markets, but while that model requires quasilinearity, we have general preferences. Given our specification looks much like the textbook Arrow-Debreu model, we think this constitutes progress on the classic problem of integrating money and general equilibrium theory. We also use the model to discuss another classic issue: the relation between inflation and unemployment. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0513&r=mon |
| By: | Yuksel Gormez; Christopher Houghton Budd |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0303&r=mon |
| By: | Ilker Domac |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0306&r=mon |
| By: | Thomas A Lubik (Reserve Bank of New Zealand) |
| Abstract: | This paper studies the transmission of business cycles and the sources of economic fluctuations in Australia and New Zealand by estimating a Bayesian DSGE model. The theoretical model is that of two open economies that are tightly integrated by trade in goods and assets. They can be thought of as economically large relative to each other, but small with respect to the rest of the world. The two economies are hit by a variety of country-specific and world-wide shocks. The main findings are that the pre-eminent driving forces of Antipodean business cycles are worldwide technology shocks and foreign, i.e. rest-of-the-world, expenditure shocks. Domestic technology shocks and monetary policy shocks appear to play only a minor role. Transmission of policy shocks is asymmetric, and neither central bank is found to respond to exchange rate movements. The model can explain 15 percent of the observed exchange rate volatility. |
| JEL: | C11 C51 C52 E58 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2005/06&r=mon |
| By: | Tony Cavoli (School of Economics, University of Adelaide); Ramkishen S. Rajan (School of Public Policy, George Mason University) |
| Abstract: | There is a broad consensus that the soft US dollar pegs operated by a number of Asian countries prior to 1997 contributed to the regional financial crisis of 1997-98. There is, however, much less agreement on the types of exchange rate regimes operated by many Asian countries since the crisis. Can they still be characterized as soft US dollar pegs, or have they become genuinely more flexible? This paper revisits the evidence regarding the extent of exchange rate flexibility in the five Asian countries (Indonesia, Korea, Malaysia, the Philippines and Thailand) using alternative methodologies and data spanning the pre- and post-crisis time period. Given the diversity of measures of de facto regimes in the literature, the use of alternative methodologies in this paper is critical as a means of obtaining an accurate and robust indication of the type of exchange rate regime operated by a country. |
| Keywords: | Asia, exchange rate regime, inflation targeting, interest rates, reserves, soft dollar peg |
| JEL: | F31 F33 |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0519&r=mon |
| By: | Travis D. Nesmith |
| Abstract: | This paper analyzes the necessary and sufficient conditions for solving money-in-the-utility-function models when contemporaneous asset returns are uncertain. A unique solution to such models is shown to exist under certain measurability conditions. Stochastic Euler equations, whose existence is normally assumed in these models, are then formally derived. The regularity conditions are weak, and economically innocuous. The results apply to the broad range of discrete-time monetary and financial models that are special cases of the model used in this paper. The method is also applicable to other dynamic models that incorporate contemporaneous uncertainty. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-52&r=mon |
| By: | Marco Del Negro; Frank Schorfheide |
| Abstract: | The paper proposes a novel method for conducting policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models and applies it to a New Keynesian DSGE model along the lines of Christiano, Eichenbaum, and Evans (JPE 2005) and Smets and Wouters (JEEA 2003). We first quantify the degree of model misspecification and then illustrate its implications for the performance of different interest rate feedback rules. We find that many of the prescriptions derived from the DSGE model are robust to model misspecification. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2005-26&r=mon |
| By: | Michelle L. Barnes; Jose A. Lopez |
| Abstract: | The Monetary Control Act of 1980 requires the Federal Reserve System to provide payment services to depository institutions through the twelve Federal Reserve Banks at prices that fully reflect the costs a private-sector provider would incur, including a cost of equity capital (COE). Although Fama and French (1997) conclude that COE estimates are “woefully” and “unavoidably” imprecise, the Reserve Banks require such an estimate every year. We examine several COE estimates based on the Capital Asset Pricing Model (CAPM) and compare them using econometric and materiality criteria. Our results suggest that the benchmark CAPM applied to a large peer group of competing firms provides a COE estimate that is not clearly improved upon by using a narrow peer group, introducing additional factors into the model, or taking account of additional firm-level data, such as leverage and line-of-business concentration. Thus, a standard implementation of the benchmark CAPM provides a reasonable COE estimate, which is needed to impute costs and set prices for the Reserve Banks’ payments business. |
| Keywords: | Capital assets pricing model ; Payment systems |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:05-2&r=mon |
| By: | Hakan Kara; Hande Kucuk Tuger |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0512&r=mon |
| By: | Ilker Domac; Eray M. Yucel |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0307&r=mon |
| By: | Yuksel Gormez; Forrest Capie |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0302&r=mon |
| By: | Valerio Crispolti (Bank of Italy, Economic Research Department); Daniela Marconi (Bank of Italy, Economic Research Department) |
| Abstract: | In this paper we investigate two potential channels of international technology transfer towards developing countries: trade and foreign direct investments. We study the extent to which, through these channels, research and development expenditures (R&D) performed by advanced countries affect total factor productivity (TFP) levels in a panel of 45 developing countries over the period 1980-2000. Paying particular attention to the potential spillovers effects stemming from human capital, we estimate a TFP equation using the FMOLS technique. Our findings show that both channels induce substantial technology transfer across countries. In addition each developing country, for a given amount of foreign R&D, enjoys bigger spillovers the higher its educational level. |
| Keywords: | Technology transfer, Economic growth, Trade, FDI |
| JEL: | O47 F12 F21 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_564_05&r=mon |
| By: | Ozge Akinci; Olcay Yucel Culha; Umit Ozlale; Gulbin Sahinbeyoglu |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0506&r=mon |
| By: | Richard Dutu; Ed Nosal; Guillaume Rocheteau |
| Abstract: | This paper develops a model of currency circulation under asymmetric information. Agents are heterogeneous and trade in bilateral matches. Coins are intrinsically valuable and are available in two weights, light and heavy. We characterize the equilibrium under complete information and under imperfect information about the quality of coins. We deter- mine a set of conditions under which the two currencies circulate and are traded according to di¤erent terms of trade. We study how output, welfare, and the velocity of currency are a¤ected by the recognizability of coins. We show that society.s welfare increases as coins become more easily recognizable. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0512&r=mon |
| By: | Ingyu Chiou (Eastern Illinois University); James Jordan- Wagner (Eastern Illinois University); Hai-Chin Yu (Chung Yuan University, Taiwan) |
| Abstract: | This paper studies how one currency market affects another currency market in a different time zone, using various contracts of the opening and closing yen-dollar exchange rates traded in Tokyo, London, and New York. We find strong and consistent evidence that the three major currency markets interact significantly. For each of five contracts we examine, Tokyo leads London and New York, London leads New York and Tokyo, and New York leads Tokyo and London. In particular, the causality relationship is much stronger when one market trades right after another. Although our results show violations of market efficiency, these findings cannot be interpreted as the existence of easy arbitrage opportunities among three markets. Instead, these strong causality relationships may be due to some unique characteristics of each of three currency markets, which cannot be observed directly. |
| Keywords: | price transmission, causality, VAR |
| JEL: | G15 |
| Date: | 2005–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512024&r=mon |
| By: | Guillaume Rocheteau; Peter Rupert; Karl Shell; Randall Wright |
| Abstract: | Using a set of standard success criteria, we show that Riksbank foreign-exchange interventions between 1993 and 2002 lacked forecast value; that is, the observed number of successes was not significantly greater--and usually substantially smaller--than the number one would anticipate given the martingale nature of exchange-rate movements. Under some success criteria, the Riksbank exhibited negative forecast value, implying that the market could have profited by taking a position opposite that of the bank. Moreover, the likelihood of success was independent of such conditioning factors as the amount of a transaction, the time lapses between interventions, or the number of foreign currencies involved. As such, Riksbank intervention could not operate through an expectations or signaling channel. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0514&r=mon |