nep-mon New Economics Papers
on Monetary Economics
Issue of 2008‒02‒09
twenty-six papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. UK inflation: persistance, seasonality and monetary policy By Denise Osborn; Marianne Sensier
  2. Robust Inflation-Targeting Rules and the Gains from International Policy Coordination By Paul Levine; Joseph Pearlman; Peter Welz
  3. Investigating inflation persistence across monetary regimes By Luca Benati
  4. How Important is Money in the Conduct of Monetary Policy? By Michael Woodford
  5. Adopting Price-Level Targeting under Imperfect Credibility By Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt
  6. Nominal and Real Interest Rates during an Optimal Disinflation in New Keynesian Models By Marcus Hagedorn
  7. A Monetary Model with Strong Liquidity Effects By Marcus Hagedorn
  8. Central Bank Communication and Expectations Stabilization By Stefano Eusepi; Bruce Preston
  9. Does a "two-pillar Phillips curve" justify a two-pillar monetary policy strategy? By Michael Woodford
  10. Monetary Policy Analysis in a Small Open Credit-Based Economy By Pierre-Richard Agénor; Peter J. Montiel
  11. The Fed and the ECB: Why such an apparent difference in reactivity? By Grégory Levieuge; Alexis Penot
  12. The Single Global Currency - Common Cents for Commerce By Bonpasse, Morrison
  13. Asymmetric Labor Market Institutions in the EMU: positive and normative implications By Mirko Abbritti; Andreas Mueller
  14. Macroeconomic Uncertainty and Performance in the European Union and Implications for the objectives of Monetary Policy By Don Bredin; Stilianos Fountas
  15. The effects of macroeconomic institutions on economic performance in a general equilibrium model By Cuciniello Vincenzo
  16. International transmission and monetary policy cooperation By Günter Coenen; Giovanni Lombardo; Frank Smets; Roland Straub
  18. Why so much wage restraint in EMU? The role of country size - Integrating trade theory with monetary policy regime accounts By Marzinotto Benedicta
  19. Optimal monetary policy in economies with dual labor markets By Mattesini Fabrizio; Rossi Lorenza
  20. Changes in the order of integration of US and UK inflation By Andreea Halunga; Denise Osborn; Marianne Sensier
  21. What Determines the Forward Exchange Rate of the Euro? By Costas Karfakis
  22. Monetary Policy and External Shocks in a Dollarized Economy with Credit Market Imperfections By Koray Alper
  23. Algorithm of Monetary Exchange in Manoilescu Generalised Scheme By Dogaru, Vasile
  24. On the determinants of currency crises: The role of model uncertainty By Jesus Crespo Cuaresma; Tomas Slacik
  25. Application of the Generalized Method of Moments for Estimating Continuous-Time Models of U.S. Short-Term Interest Rates By Balázs Cserna
  26. The Continental Dollar: What Happened to It after 1779? By Farley Grubb

  1. By: Denise Osborn; Marianne Sensier
    Date: 2007
  2. By: Paul Levine (University of Surrey); Joseph Pearlman (London Metropolitan University); Peter Welz (Sveriges Riksbank)
    Abstract: This paper empirically assesses the performance of interest-rate monetary rules for interdependent economies characterized by model uncertainty. We set out a two-bloc dynamic stochastic general equilibrium model with habit persistence (that generates output persistence), Calvo pricing and wage-setting with indexing of non-optimized prices and wages (generating inflation persistence), incomplete financial markets and the incomplete pass-through of exchange rate changes. We estimate a linearized form of the model by Bayesian maximum-likelihood methods using US and Euro-zone data. From the estimates of the posterior distributions we then examine monetary policy conducted both independently and cooperatively by the Fed and the ECB in the form of robust inflation-targeting interest-rate rules. Comparing the utility outcome in a closed-loop Nash equilibrium with the outcome from a coordinated design of policy rules, we find a new result: the gains from monetary policy coordination rise significantly when CPI inflation targeting interest-rate rules are designed to account for model uncertainty.
    Keywords: monetary policy coordination, robustness, inflation-targeting interest-rate rules.
    JEL: E52 E37 E58
    Date: 2008–01
  3. By: Luca Benati (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Under inflation targeting inflation exhibits negative serial correlation in the United Kingdom, and little or no persistence in Canada, Sweden and New Zealand, and estimates of the indexation parameter in hybrid New Keynesian Phillips curves are either equal to zero, or very low, in all countries. Analogous results hold for the Euro area–and for France, Germany, and Italy–under European Monetary Union; for Switzerland under the new monetary regime; and for the United States, the United Kingdom and Sweden under the Gold Standard: under stable monetary regimes with clearly defined nominal anchors, inflation appears to be (nearly) purely forward-looking, so that no mechanism introducing backward-looking components is necessary to fit the data. These results question the notion that the intrinsic inflation persistence found in post-WWII U.S. data–captured, in hybrid New Keynesian Phillips curves, by a significant extent of backward-looking indexation–is structural in the sense of Lucas (1976), and suggest that building inflation persistence into macroeconomic models as a structural feature is potentially misleading. JEL Classification: E31, E42, E47, E52, E58.
    Keywords: Inflation, European Monetary Union, inflation targeting, Gold Standard, Lucas critique, median-unbiased estimation, Markov Chain Monte Carlo.
    Date: 2008–01
  4. By: Michael Woodford (Columbia University - Department of Economics)
    Abstract: I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Second, I consider whether models of inflation determination with no role for money are incomplete, or inconsistent with elementary economic principles. Third, I consider the implications for monetary policy strategy of the empirical evidence for a long-run relationship between money growth and inflation. And fourth, I consider reasons why a monetary policy strategy based solely on short-run inflation forecasts derived from a Phillips curve may not be a reliable way of controlling inflation. I argue that none of these considerations provides a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy.
    Date: 2007
  5. By: Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt
    Abstract: This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting. We revisit this issue by introducing imperfect credibility, which is modeled as gradual adjustment of the private sector's beliefs about the policy change. We find that gains from switching to pricelevel targeting, if any, are small.
    Keywords: Credibility; Monetary policy framework
    JEL: E31 E52
    Date: 2008
  6. By: Marcus Hagedorn
    Abstract: Central bankers' conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should be decreased to attain this goal. Real interest rates, however, are virtually unchanged. These results also hold in recent vintages of New Keynesian models with sticky wages, price and wage indexation and habit formation in consumption.
    Keywords: Disinflation, Optimal Monetary Policy, Nominal and Real Interest Rates
    JEL: E41 E43 E51 E52
    Date: 2007–12
  7. By: Marcus Hagedorn
    Abstract: This paper studies the joint business cycle dynamics of in ation, money growth, nominal and real interest rates and the velocity of money. I extend and estimate a standard cash and credit monetary model by adding idiosyncratic preference shocks to cash consumption as well as a banking sector. The estimated model accounts very well for the business cycle data, a finding that standard monetary models have not been able to generate. I find that the quantitative performance of the model is explained through substantial liquidity effects.
    Keywords: Money, Banking, Monetary Transmission Mechanism, Liquidity, Business Cycles
    JEL: E31 E32 E41 E42 E51
    Date: 2007–12
  8. By: Stefano Eusepi (Federal Reserve Bank of New York); Bruce Preston (Columbia University - Department of Economics)
    Abstract: The value of communication in monetary policy is analyzed in a model in which expectations need not be consistent with central bank policy - and, therefore, unanchored - because agents face difficult forecasting problems. When the central bank implements optimal policy without communication, the Taylor principle is not sufficient for macroeconomic stability: expectations are unanchored and self-fulfilling expectations are possible. To mitigate this instability, three communication strategies are contemplated to ensure consistency between private forecasts and monetary policy strategy: i) communicating the precise details of the monetary policy ¿ that is, the variables and coefficients; ii) communicating only the variables on which monetary policy decisions are conditioned; and iii) communicating the inflation target. The first two strategies restore the Taylor principle as a sufficient condition for anchoring expectations. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against expectations driven fluctuations. These results underscore the importance of communicating the systematic component of monetary policy strategy: announcing an inflation target is not enough to stabilize expectations ¿ one must also announce how this target will be achieved.
    Date: 2007
  9. By: Michael Woodford (Columbia University - Department of Economics)
    Abstract: Arguments for a prominent role for attention to the growth rate of monetary aggregates in the conduct of monetary policy are often based on references to low-frequency reduced-form relationships between money growth and inflation. The "two-pillar Phillips curve" proposed by Gerlach (2004) has recently attracted a great deal of interest in the euro area, where it is sometimes supposed to provide empirical support for the wisdom of a "two-pillar strategy" that uses distinct analytical frameworks to assess shorter-run and longer-run risks to price stability. I show, however, that regression coefficients of the kind reported by Assenmacher-Wesche and Gerlach (2006a) among others are quite consistent with a "new Keynesian" model of inflation determination, in which the quantity of money plays no role in inflation determination, at either high or low frequencies. I also show that empirical results of this kind do not in themselves establish that money growth must be useful in forecasting inflation, either in the short run or over a longer run. Hence they provide little support for the ECB's monetary "pillar."
    Date: 2007
  10. By: Pierre-Richard Agénor; Peter J. Montiel
    Abstract: This paper describes a simple framework for monetary policy analysis in a small open economy where bank credit is is the only source of external finance. At the heart of the model is the link between banks' lending rates (which incorporate a premium over and above the marginal cost of borrowing) and firms' net worth. In contrast to models in the Stiglitz-Weiss or Kiyotaki-Moore tradition, the supply of bank loans is perfectly elastic at the prevailing rate. The central bank sets the refinance rate and provides unlimited access to liquidity at that rate. The model is used to study the effects of changes in official interest rates, under both fixed and flexible exchange rates. Various extensions are also discussed, including income effects, the cost channel, the role of land as collateral, and dollarization.
    Date: 2007
  11. By: Grégory Levieuge (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Alexis Penot (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: Compared with the U.S., the amplitude of the European monetary policy rate cycle is strikingly narrow. Is it an evidence of a less reactive ECB? This observation can certainly reflect the preferences and then the strategy of the ECB. But its greater inertia must also be assessed in the light of the singularity of the European structure and of the shocks hitting it. From this perspective, several contributions assert that the nature, size and persistence of shocks mainly explain the different interest rate setting. Therefore, they rely on the idea that both areas share the same monetary policy rule and, more surprising, the same structure. This paper aims at examining this conclusions with an alternative modelling. The results confirm that the euro area and U.S. monetary policy rules are not fundamentally different. But we reject the differences of nature and amplitude of shocks. What is often interpreted as such is in fact the consequence of how distinctly both economies absorb shocks. So differences in the amplitude of the interest rate cycles in both areas are basically explained by structural dissimilarities.
    Keywords: interest rate; macroeconomic shocks; monetary policy rules ; policy activism; structural divergence
    Date: 2008
  12. By: Bonpasse, Morrison
    Abstract: As globalization continues, businesses are increasingly importing and exporting from countries with different currencies. To conduct that business, they must pay fees for exchanging one currency for another and they must determine the exchange rate for a particular time. If the transaction is to be conducted over time, they may purchase currency instruments to hedge against currency fluctuation. The costs of these tasks to such firms are significant. As an increasing number of international businesses understand that these expensive tasks are unnecessary for trade conducted within a monetary union, these businesses are likely to lead the effort to implement a Single Global Currency, to be managed by a Global Central Bank within a Global Monetary Union. In short, a "3-G" world. It's common cents. Much further research is needed to identify the benefits of a Single Global Currency and the steps and schedule necessary for implementation.
    Keywords: Single Global Currency; monetary union; dollar; euro; European Monetary Union; Global Central Bank; Global Monetary Union; international monetary system; Bretton Woods; foreign exchange; currency; currency crisis; transaction costs; trade; commerce
    JEL: F4 F5 E5 E6
    Date: 2008–02–04
  13. By: Mirko Abbritti; Andreas Mueller
    Abstract: How do labor market institutions affect the volatility and persistence of inflation and unemployment in a monetary union? What are the implications for monetary policy? This paper sets up a DSGE currency union model with unemployment, hiring frictions and real wage rigidities. The model provides a rigorous but tractable framework for the analysis of the functioning of a currency union characterized by asymmetric labor market institutions. Positively, we find that inflation and unemployment differentials depend strongly on the underlying labor market structure: the hiring friction lowers the persistence and increases the volatility of the inflation differential whereas real wage rigidities imply more persistence and variability in output and unemployment differentials. Normatively, we find that macroeconomic stabilization is easier when labor market frictions are high and real wage rigidities are low. This has important implications for optimal monetary policy: The optimal inflation target should give a higher weight to regions with more sclerotic labor markets and more flexible real wages.
    Date: 2007–12
  14. By: Don Bredin (School of Business, University College Dublin); Stilianos Fountas (Department of Economics, University of Macedonia)
    Abstract: We use a very general bivariate GARCH-M model and monthly data on EU countries covering the 1962-2003 period to test for the impact of real (output growth) and nominal (inflation) macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative. Second, contrary to expectations, inflation uncertainty in several cases improves the output growth performance of an economy implying that the focus of European monetary policy strategy on stabilising inflation rather than output growth may be misplaced. Third, inflation and output uncertainty have a mixed effect on inflation. Our conclusions are based on adopting both a structural and a reduced form bivariate GARCH model. These results imply that macroeconomic uncertainty may even improve macroeconomic performance. Finally, we also and statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample.
    Keywords: Inflation, Output growth, Macroeconomic uncertanty
    JEL: C22 C52 E31 E52
    Date: 2008–01
  15. By: Cuciniello Vincenzo
    Abstract: This paper analyzes the relation between inflation, output and government size by reexamining the time inconsistency of optimal monetary and fiscal policies in a general equilibrium model with staggered timing structure for the acquisition of nominal money a la Neiss (1999), and public expenditure financed by means of a distortive tax. It focuses on how macroeconomic institutions may affect output, inflation and taxation when monetary and fiscal policies strategically interact in presence of monopolistic distortions in labor markets. It is shown that, with pre determined wage setting, fiscal and monetary policy are subject to a time inconsistency problem, and the equilibrium rate of inflation is above the Friedman rule while the equilibrium tax rate is below the efficient level. In particular, the discretionary rate of inflation is nonmonotonically related to the natural output, positively related to government size, and negatively related to conservatism. Finally, a regime with commitment is always welfare improving over a regime with discretion.
    Date: 2008–02
  16. By: Günter Coenen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Giovanni Lombardo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frank Smets (Corresponding author - European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Roland Straub (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We use a version of the New Area-Wide Model (NAWM) developed at the ECB in order to quantify the gains from monetary policy cooperation. The model is calibrated in order to match a set of empirical moments. We then derive the cooperative and (open-loop) Nash monetary policies, assuming that the central banks’ objectives is to maximize the welfare of the households. Our results show that given the current degree of openness of the US and euro area economies, the gains from monetary policy coordination are small, amounting to 0.03 percent of steady-state consumption. Nevertheless, the gains appear to be sensitive to the degree of openness and further economic integration between the two regions could generate sizable gains from cooperation. For example, increasing the trade shares to 32 percent of GDP in both regions, the gains from cooperation rise to about 1 percent of steady-state consumption. By decomposing the sources of the gains from cooperation with respect to the various shocks, we show that mark-up shocks are the most important source for gains from international monetary policy cooperation. JEL Classification: E32, F41, F42.
    Keywords: New Area Wide Model, international policy coordination, DSGE, two-country.
    Date: 2008–01
  17. By: Nwaobi, Godwin
    Abstract: Indeed, the specification of equilibrium in the world economy depends on the exchange rate regime and thus, the early contributions to the postwar literature on exchange rate economics are to a large extent concerened with the role of speculation in foreign exchange markets. However, the world has known several exchange rate systems beginning with the fixed-gold standard, the adjustable-peg system, adjustable-parity system and the flexible exchange rate system. Yet, in 1997, when foreign exchange was deregulated, independent traders finally had access to the biggest trading market of the world; and these forex traders attempt to make money from the simultaneous buying and selling of foreign currencies. And within the forex market, many types of instruments can be used:futures market,spot market, and forward market.However, the degree of volatility tends to increase with the frequency with which observations are sampled and this can be seen clearly as one moves from monthly to daily observations on exchange rates. Thus the basic thrust of the paper is to analyse the forecasting accuracy of the full vector autoregressive(FVAR), mixed vector autoregressive(MVAR) and Bayesian vector autoregressive(BVAR) models of the selected currency pairs(based on the monetary/asset model of exchange rate determination).
    Keywords: exchange rate; foreign exchange; forex; forecasting; vector autoregression; regimes; volatility; world;future markets; spotmarket;futures; options; assets; portfolio balance; brettonwood; IMF; Fixed rate; Floating rate; adjustable peg; purchasing power parity(PPP); Uncovered interest rate parity(UIP); internal balance; external balance; devaluation; overvaluation; pips; currency pairs; trading platform; forex allocation; parallel(black) market; banks; brokers; misalignment
    JEL: F00 F37 G1 C53 E42 G15 E44 F31
    Date: 2008–02–01
  18. By: Marzinotto Benedicta
    Abstract: Using theoretical models about the interaction between monetary policy-making and wage bargaining institutions, some researchers had been predicting an acceleration in wage growth under EMU (Iversen and Soskice 1998; Iversen et al 2000; Cukierman and Lippi 2001). However, the empirical evidence shows that, after the formation of the monetary union, wage growth has remained under control or even decelerated. Of the numerous explanations advanced to account for this trend, the most promising seems the one proposed by Posen and Gould (2006), who argue that behind the generalised shift towards wage restraint is enhanced monetary credibility in EMU. Whilst building on a similar argument, this paper adds to it in important respects. First, I show that the effects of a monetary union depend on labour market institutions. Second, and most originally, I argue that a strategic interaction between the ECB and non-atomistic labour unions is possible only in the case of large countries, whose price behaviour can potentially affect EU-13 inflation. This leads to the main finding behind this paper, namely that the relationship between wage growth and economy size is hump-shaped, with wage restraint more present in large and small countries, and less so in countries of intermediate size. Differently from a large country like Germany, small economies are free riders with respect to the monetary regime, but they care nonetheless for cost competitiveness, even if to different degrees. On the other hand, intermediate countries are trapped “inbetween” because neither do they believe capable of affecting euro-zone inflation, nor do they look at cost competitiveness as key to their economic survival.
    Keywords: Wage restraint, collective wage bargaining, EMU, openness, international trade
    JEL: J31 J51 E50 F15 F41
    Date: 2008–02
  19. By: Mattesini Fabrizio; Rossi Lorenza
    Abstract: We analyze, in this paper, a DSGE New Keynesian model with indivisible labor where firms may belong to two different final goods producing sectors: one where wages and employment are determined in competitive labor markets and the other where wages and employment are the result of a contractual process between unions and ?rms. Bargaining between firms and monopoly unions implies real wage rigidity in the model and, in turn, an endogenous trade-o¤ between output stabilization and inflation stabilization. We show that the negative effect of a productivity shock on inflation and the positive effect of a cost-push shock is crucially determined by the proportion of firms that belong to the competitive sector. The larger is this number, the smaller are these effects. We derive a welfare based objective function as a second order Taylor approximation of the expected utility of the economy’s representative agent and we analyze optimal monetary policy. We show that the larger is the number of firms that belong to the competitive sector, the smaller should be the response of the nominal interest rate to exogenous productivity and cost-push shocks. If we consider, however, an instrument rule where the interest rate must react to inflationary expectations, the rule is not affected by the structure of the labor market. The results of the model are consistent with a well known empirical regularity in macroeconomics, i.e. that employment volatility is larger than real wage volatility.
    Date: 2008–02
  20. By: Andreea Halunga; Denise Osborn; Marianne Sensier
    Date: 2007
  21. By: Costas Karfakis (Department of Economics, University of Macedonia)
    Abstract: This study examines the determinants of the forward exchange rate of the euro in the context of the “modern approach” for five currency combinations. The co-integration analysis suggests that speculation has played a minor role and arbitrage played a major role in determining the forward exchange rate of the euro.
    Keywords: Euro, Forward Exchange Rate, Arbitrage, Speculation, Co-integration
    JEL: F31 F37
    Date: 2008–02
  22. By: Koray Alper
    Abstract: Using different combinations of culture, development and openness to international trade, we test the variability in the incidences of corruption at different stages of development or in other words the non-linearities in the relationship between corruption and development. We employ formal threshold model developed by Hansen (2000), and unlike the existing literature, we find that: (1) non-linear models that search for the break points in the relationship between corruption and development are statistically preferable than linear regressions; (2) the effect of development at any stage is much lower than that has been suggested by studies using linear regressions approach; (3) both culture and openness do not affect corruption directly; rather they have an effect on the location of break points in the relationship between corruption and development.
    Date: 2007
  23. By: Dogaru, Vasile
    Abstract: In a monetary competitive economy, the economic entities from the most countries are depending, in the international economic relations, on the existence of a foreign currency accepted in this operation and consequently on exchange rate between the currency from the specific state and this currency. The increase of the products’ exchange through the currency price allows us to study, from an analytical point of view, the most popular of the cases from the international trade: the export or import of merchandise which is not conditioned by the reverse operation of another product. The study will need to take into consideration some changes regarding the requirement of a simple exchange, with two products, which are necessary for the comprehension of this trade process. Firstly, in any analysis which regards an unilateral export operation of products, import or export not reciprocal connected, the partner’s internal prices aren’t observed as a rule such as in a simple exchange are. Now, the analysis necessarily needs to include the currency’s use matter, which is possible to be appreciated or depreciated in the “depositing” stage. Our main observation direction isn’t to at least collaterally follow this phenomenon, which is considered important regarding the imperceptible change of the currency’s instrument role.
    Keywords: Keywords: comparative advantage; currency; Manoilescu generalised scheme; resources saving. JEL codes: F17; E40; Q56; B41
    JEL: Q5 F17 Q56 B4 E40 B41
    Date: 2007–05
  24. By: Jesus Crespo Cuaresma; Tomas Slacik
    Abstract: We tackle explicitly the issue of model uncertainty in the framework of binary variable models of currency crises. Using Bayesian model averaging techniques, we assess the robustness of the explanatory variables proposed in the recent literature for both static and dynamic models. Our results indicate that the variables belonging to the set of macroeconomic fundamentals proposed by the literature are very fragile determinants of the occurrence of currency crises. The results improve if the crisis index identifies a crisis period (defined as the period up to a year before a crisis) instead of a crisis occurrence. In this setting, the extent of real exchange rate misalignment and financial market indicators appear as robust determinants of crisis periods.
    Keywords: Forecasting, model averaging, Bayesian econometrics, exchange rates.
    JEL: F31 F34 E43
  25. By: Balázs Cserna (University of Heidelberg, Department of Economics)
    Abstract: We show by Monte Carlo simulations that the jackknife estimation of QUENOUILLE (1956) provides substantial bias reduction for the estimation of short-term interest rate models applied in CHAN ET AL. (1992) - hereafter CKLS (1992). We find that an alternative estimation based on NOWMAN (1997) does not sufficiently solve the problem of time aggregation. We provide empirical distributions for parameter tests depending on the elasticity of conditional variance. Using three-month U.S. Treasury bill yields and the Federal fund rates, we demonstrate that the estimation results can depend on both the sampling frequency and the proxy that is used for interest rates.
    Keywords: Elasticity of conditional variance, generalized method of moments, jackknife estimation, stochastic differential equations, short-term interest rate.
    JEL: C16 C52
    Date: 2008–01
  26. By: Farley Grubb
    Abstract: Congress financed the American Revolution by issuing paper Continental Dollars. The story of the Continental Dollar is familiar to all -- a lot were issued and hyper-inflation ensued. Emissions were permanently discontinued in 1779. Thereafter, they became worthless and were forgotten. They had no impact on subsequent public finance. The veracity of the last part of this story is challenged here. Evidence is presented to establish that the disposition of the Continental Dollar remained an open question well into the 1790s. Evidence is also presented to establish the exact time path of the retirement of Continental Dollars between 1779 and 1790.
    JEL: N1 N11 N2 N21
    Date: 2008–02

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