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  • Author: Jonathan H. Wright, David W. Berger, Alain P. Chaboud, Sergey V. Chernenko, Edward Howorka, Raj S. Iyer, David Liu
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: We study the association between order flow and exchange rate returns in five years of high-frequency intraday data from the leading interdealer electronic broking system, EBS. While the association between order flow and exchange rate returns has been studied in several previous papers, these have mostly used relatively short spans of daily data from older bilateral dealing systems and, usually, transaction counts instead of actual trading volume. Using a substantially longer span of recent high-frequency data and measuring order flow as actual signed trading volume, we find a strong positive association between order flow and exchange rate returns at frequencies ranging from one minute to one day, and a more modest but still sizeable association at the monthly frequency. We find, however, no evidence that order flow has predictive power for future exchange rate movements beyond, possibly, the next minute. Focusing on the behavior of order flow and exchange rates at the time of scheduled U.S. economic data releases, we find that the surprise components of these announcements are associated with order flow at high frequency immediately after the data releases. This finding seems inconsistent with a simple efficient markets view of how a public news announcement is incorporated into prices.
  • Topic: Economics, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Neville Francis, Michael T. Owyang, Jennifer T. Roush
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Recent empirical studies using infinite horizon long-run restrictions question the validity of the technology-driven real business cycle hypothesis. These results have met with their own controversy, stemming from their sensitivity to changes in model specification and the general poor performance of long run restrictions in Monte Carlo experiments. We propose a alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long, but finite horizon. In small samples, our identification outperforms its infinite horizon counterpart by producing less biased impulse responses and technology shocks that are more highly correlated with the technology shocks from the underlying model. For U.S. data, we show that the negative hours response is not robust to allowing a greater role for non-technology shocks in the forecast error variance share at a ten year horizon.
  • Topic: Development, Industrial Policy, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Sylvain Leduc, Giancarlo Corsetti, Luca Dedola
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to efficient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that a standard international business cycle model with incomplete asset markets augmented with distribution services can account quantitatively for these properties of real exchange rates. Distribution services, intensive in local inputs, drive a wedge between producer and consumer prices, thus lowering the impact of terms-of-trade changes on optimal agents' decisions. This reduces the price elasticity of tradables separately from assumptions on preferences.
  • Topic: Development, Economics, International Trade and Finance, Science and Technology
  • Political Geography: United States
  • Author: Luca Guerrieri, Christopher Gust, Christopher J. Erceg
  • Publication Date: 10-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Gali's innovative approach of imposing long-run restrictions on a vector autoregression (VAR) to identify the effects of a technology shock has become widely utilized. In this paper, we investigate its reliability through Monte Carlo simulations using calibrated business cycle models. We find it encouraging that the impulse responses derived from applying the Gali methodology to the artificial data generally have the same sign and qualitative pattern as the true responses. However, we find considerable estimation uncertainty about the quantitative impact of a technology shock on macroeconomic variables, and little precision in estimating the contribution of technology shocks to business cycle fluctuations. More generally, our analysis emphasizes that the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption, and depend on model structure, the nature of the underlying shocks, and variable selection in the VAR. This cautions against interpreting responses derived from this approach as model-independent stylized.
  • Topic: Conflict Resolution, Economics, International Trade and Finance, Science and Technology
  • Publication Date: 10-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In 2001, the Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT)) directed the Defense Science Board (DSB) to study the precision targeting of air-delivered munitions. The results of the 2001 Task Force were well-received within Office of the Secretary of Defense (OSD), and in June 2003, USD(AT) directed the DSB to study the closely related topic of “integrated fire support in the battlespace.” In this new study the 2003 Task Force applied an approach and methodology similar to the 2001 effort but focused instead on ground-based fires, sea-based fires, and close-air support.
  • Topic: Defense Policy, Science and Technology
  • Political Geography: United States
  • Publication Date: 10-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In February 2003, the Office of the Deputy Under Secretary of Defense for Industrial Policy, ODUSD(IP), produced Transforming the Defense Industrial Base: A Roadmap. This report identified the need for systematic evaluation of the ability of the defense industrial base to develop and provide functional, operational effects-based warfighting capabilities. The Defense Industrial Base Capabilities Study (DIBCS) series is a systematic assessment of critical technologies needed in the 21st century defense industrial base to meet warfighter capabilities, as framed by the Joint Staff's functional concepts. In addition, the DIBCS series provides the basis for strengthening the industrial base required for 21st century warfighting needs. This report addresses the third of those functional concepts, Force Application.
  • Topic: Defense Policy, Industrial Policy, Science and Technology
  • Political Geography: United States
  • Publication Date: 10-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: Weapons system readiness and safety are among the highest priority challenges for the Department of Defense (DoD). As it continues to receive a large number of mission taskings, it is imperative that DoD equipment be maintained at an acceptable level of material condition so that it may be employed safely and effectively when required, often in harsh and physically demanding environments. However, both the material condition and safety of DoD equipment are routinely being undermined by the effects of corrosion. The dollar cost of corrosion to DoD has been estimated by the Government Accountability Office (GAO) to be $10-20 billion per year. Aggressive action is needed at every stage in the life cycle of this equipment — during design, materials selection, construction, operation, and maintenance — to reduce the negative effects of corrosion.
  • Topic: Defense Policy, Arms Control and Proliferation, Science and Technology
  • Political Geography: United States
  • Publication Date: 09-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: During the Cold War, the United States developed and refined intelligence capabilities upon a number of key factors: Known adversaries, the Soviet Union and the Communist Bloc, including China and North Korea; Known geographic boundaries: that of the communist nation states (We knew where to look); Known conflict of ideology: communism vs. capitalism; Observable (with some degree of confidence over time) military capabilities of adversaries; and Indications (and in some cases, warning - developed over the years) of activity potentially hazardous to the United States and NATO.
  • Topic: Defense Policy, National Security, Science and Technology
  • Political Geography: United States, China, North Korea
  • Publication Date: 07-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: The vertical lift industrial base still is being shaped by government and industry responses to the Nunn-McCurdy cost breaches of 2001 and the unintended consequences of Department-endorsed teaming arrangements that resulted in an interlocked industrial base that restricted Department and industry flexibility. The Department's budget-driven remanufacture strategy in the 1990s produced a series of sole-sourced relationships, leaving few real competitive opportunities among the helicopter prime contractors to force technology refresh cycles. With limited competition, few new platform contracts, and declining government technology investments, industry was left little incentive to invest in independent research.
  • Topic: Defense Policy, Industrial Policy, Science and Technology
  • Political Geography: United States
  • Publication Date: 06-2004
  • Content Type: Working Paper
  • Institution: U.S. Government
  • Abstract: In accordance with the National Defense Authorization Act for FY 2004, the Defense Science Board (DSB) was asked to assess the potential contributions of a Space Based Radar (SBR) to missile defense. In response, the Undersecretary of Defense for Acquisition, Technology and Logistics (USD (AT), and the Director, Missile Defense Agency (MDA) directed that the DSB Task Force on the Contribution of a Space Based Radar to Missile Defense perform the following tasks: Assess the impact of adding a missile defense mission on the ability of SBR satellites to conduct their primary missions; Assess how different SBR architectures and technical approaches might affect the ability of the satellites to achieve their primary missions and to contribute to missile defense; Assess the value of potential SBR capabilities in the context of the family of sensors being developed by the Missile Defense Agency; and Recommend any future actions that might be desirable related to SBR contributions to missile defense.
  • Topic: Defense Policy, National Security, Science and Technology, Weapons of Mass Destruction