Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds
Patrick E. McCabe
Marco Cipriani
Michael Holscher
Antoine Martin
Abstract

This paper advances the theory and methodology of signal extraction by introducing asymptotic and finite sample formulas for optimal estimators of signals in nonstationary multivariate time series. Previous literature has considered only univariate or stationary models. However, in current practice and research, econometricians, macroeconomists, and policy-makers often combine related series - that may have stochastic trends--to attain more informed assessments of basic signals like underlying inflation and business cycle components. Here, we use a very general model structure, of widespread relevance for time series econometrics, including flexible kinds of nonstationarity and correlation patterns and specific relationships like cointegration and other common factor forms. First, we develop and prove the generalization of the well-known Wiener-Kolmogorov formula that maps signal-noise dynamics into optimal estimators for bi-infinite series. Second, this paper gives the first explicit treatment of finite-length multivariate time series, providing a new method for computing signal vectors at any time point, unrelated to Kalman filter techniques; this opens the door to systematic study of near end-point estimators/filters, by revealing how they jointly depend on a function of signal location and parameters. As an illustration we present econometric measures of the trend in total inflation that make optimal use of the signal content in core inflation.


Download Full text
Download Full text
Cite this item
Patrick E. McCabe & Marco Cipriani & Michael Holscher & Antoine Martin, The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2012-47, 2012.
More from this series
JEL Classification:
Subject headings:
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal