Number of results to display per page
Search Results
2912. Breaks in the Variability and Co-Movement of G-7 Economic Growth
- Author:
- Jon Faust and Brian M. Doyle
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This paper investigates breaks in the variability and co-movement of output, consumption, and investment in the G-7 economies. In contrast with most other papers on co-movement, we test for changes in co-movement allowing for breaks in mean and variance. Despite claims that rising integration among these economies has increased output correlations among them, we find no clear evidence of an increase in correlation of growth rates of output, consumption, or investment. This finding is true even for the United States and Canada, which have seen a tremendous increase in bilateral trade shares, and for the members of the euro area in the G-7.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States, Canada, and North America
2913. Interest Rate Rules and Multiple Equilibria in the Small Open Economy
- Author:
- Luis-Felipe Zanna
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- In a small open economy model with traded and non-traded goods this paper characterizes conditions under which interest rate rules induce aggregate instability by generating multiple equilibria. These conditions depend not only on how aggressively the rule responds to inflation, but also on the measure of inflation to which the government responds, on the degree of openness of the economy and on the degree of exchange rate pass-through. As an important policy implication, this paper finds that to avoid aggregate instability in the economy the government should implement an aggressive rule with respect to the inflation rate of the sector that has sticky prices. That is the non-traded goods inflation rate. As a by-product of this analysis, it is shown that "fear-of-floating" governments that follow a rule that responds to both the CPI-inflation rate and the nominal depreciation rate or governments that implement "super-inertial" interest rate smoothing rules may actually induce multiple equilibria in their economies. This paper also shows that for forward-looking rules, the determinacy of equilibrium conditions depends not only on the degree of openness of the economy but also on the weight that the government puts on expected future CPI-inflation rates. In fact rules that are "excessively" forward-looking always lead to multiple equilibria.
- Topic:
- International Relations, Economics, Government, and International Trade and Finance
2914. Productivity Growth and the Phillips Curve in Canada
- Author:
- Joseph W. Gruber
- Publication Date:
- 11-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This study examines the impact of productivity growth on the relationship between inflation and unemployment in Canada. Recently it has been suggested that higher productivity growth is responsible for a shift in the U.S. Phillips curve that occurred in the late 1990s. This paper examines whether the Phillips curve in Canada shifted in a manner similar to that of the United States, and the degree to which higher productivity growth explains this shift.
- Topic:
- International Relations, Economics, and Industrial Policy
- Political Geography:
- Canada and North America
2915. The High-Frequency Response of Exchange Rates and Interest Rates to Macroeconomic Announcements
- Author:
- John H. Rogers, Jonathan H. Wright, Jon Faust, and Shing-Yi B. Wang
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Many recent papers have studied movements in stock, bond, and currency prices over short windows of time around macro announcements. This paper adds to the announcement effects literature in two ways. First, we study the joint announcement effects across a broad range of assets--exchange rates and U.S. and foreign term structures. In order to evaluate whether the joint effects can be reconciled with conventional theory, we interpret the joint movements in light of uncovered interest rate parity or changes in risk premia. For several real macro announcements, we find that a stronger than expected release appreciates the dollar today, but that it must either (i) lower the relative risk premium for holding foreign currency rather than dollars, or (ii) imply considerable future expected dollar depreciation. The latter implies an overshooting behavior akin to that described by Dornbusch (1976). Second, we use a longer span of high frequency data than has been common in announcement work. A longer span of high frequency data contributes to the precision of our estimates and allows us to explore the possibility that the effects of macro surprises on asset prices have varied over time. We find evidence, for example, that PPI releases had a larger effect on U.S. interest rates before about 1992 than subsequently.
- Topic:
- International Relations, Economics, Government, and International Trade and Finance
- Political Geography:
- United States
2916. Market Power and Inflation
- Author:
- David Bowman
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This paper examines the extent to which a decline in market power could have contributed to the general decline in inflation rates experienced in developed countries during the 1990s.
- Topic:
- International Relations, Economics, Government, and International Trade and Finance
2917. Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance
- Author:
- Joseph E. Gagnon
- Publication Date:
- 10-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Most macroeconomic models imply that faster output growth tends to lower a country's trade balance by raising its imports with little change to its exports. Krugman (1989) proposed a model in which countries grow by producing new varieties of goods. In his model, faster-growing countries are able to export these new goods and maintain balanced trade without suffering any deterioration in their terms of trade. This paper analyzes the growth of U.S. imports from different source countries and finds strong support for Krugman's model.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States
2918. Iraq and Afghanistan - Administration's Supplemental Funding Request
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Two years ago, we responded to attacks on America by launching a global war against terrorism that has removed gathering threats to America and our allies and has liberated the Iraqi and Afghan people from oppression and fear.
- Topic:
- Security, Defense Policy, and Economics
- Political Geography:
- Afghanistan, Iraq, America, and Middle East
2919. Forecasting U.S. Inflation by Bayesian Model Averaging
- Author:
- Jonathan H. Wright
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Recent empirical work has considered the prediction of inflation by combining the information in a large number of time series. One such method that has been found to give consistently good results consists of simple equal weighted averaging of the forecasts over a large number of different models, each of which is a linear regression model that relates inflation to a single predictor and a lagged dependent variable. In this paper, I consider using Bayesian Model Averaging for pseudo out-of-sample prediction of US inflation, and find that it gives more accurate forecasts than simple equal weighted averaging. This superior performance is consistent across subsamples and inflation measures. Meanwhile, both methods substantially outperform a naive time series benchmark of predicting inflation by an autoregression.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States
2920. Bayesian Model Averaging and Exchange Rate Forecasts
- Author:
- Jonathan H. Wright
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Exchange rate forecasting is hard and the seminal result of Meese and Rogoff (1983) that the exchange rate is well approximated by a driftless random walk, at least for prediction purposes, has never really been overturned despite much effort at constructing other forecasting models. However, in several other macro and financial forecasting applications, researchers in recent years have considered methods for forecasting that combine the information in a large number of time series. One method that has been found to be remarkably useful for out-of-sample prediction is simple averaging of the forecasts of different models. This often seems to work better than the forecasts from any one model. Bayesian Model Averaging is a closely related method that has also been found to be useful for out-of-sample prediction. This starts out with many possible models and prior beliefs about the probability that each model is the true one. It then involves computing the posterior probability that each model is the true one, and averages the forecasts from the different models, weighting them by these posterior probabilities. This is effectively a shrinkage methodology, but with shrinkage over models not just over parameters. I apply this Bayesian Model Averaging approach to pseudo-out-of-sample exchange rate forecasting over the last ten years. I find that it compares quite favorably to a driftless random walk forecast. Depending on the currency-horizon pair, the Bayesian Model Averaging forecasts sometimes do quite a bit better than the random walk benchmark (in terms of mean square prediction error), while they never do much worse. The forecasts generated by this model averaging methodology are however very close to (but not identical to) those from the random walk forecast.
- Topic:
- International Relations, Economics, and International Trade and Finance
- Political Geography:
- United States