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Working Paper
On the dynamic properties of asymmetric models of real GNP
There is now a substantial body of evidence that suggests business cycles are asymmetric. However, the evidence has been accumulated using a wide array of statistical techniques and, consequently, is based on various definitions of asymmetry. This paper examines several parametric models that have been used to study asymmetries in real GNP. Although these models capture asymmetries in very different ways, their dynamic properties are remarkably similar.
Working Paper
The federal funds rate and the implementation of monetary policy: estimating the Federal Reserve's reaction function
Several recent studies have reached quite different conclusions about which variable is the best indicator of the stance of monetary policy. These differences likely reflect varying assumptions about bank and Federal Reserve behavior. This paper takes a detailed and comprehensive look at the implementation of monetary policy and the identification of monetary policy shocks. The paper first outlines a general analytical model for studying and evaluating monetary policy procedures. The model is then used to estimate both the Fed's operational policy objectives and its intermediate objectives. ...
Working Paper
Are banks market timers or market makers? Explaining foreign exchange trading profits
We analyze the foreign exchange trading earnings of large U.S commercial banks over the past several years. In particular, we use several approaches to try to determine to what extent these profits can be attributed either to position-taking by banks or to the provision of intermediation services to bank customers. The results can be summarized as follows. First, banks appear to generate a substantial portion of their foreign exchange earnings from making markets in conventional spot and forward foreign exchange contracts. In addition, some indirect evidence supports anecdotal reports that ...
Working Paper
Using measures of expectations to identify the effects of a monetary policy shock
This paper considers an alternative econometric approach to the VAR methodology for identifying and estimating the effects of monetary policy shocks. The alternative approach incorporates available measures of market participants' expectations of economic variables in order to calculate economic innovations to those variables. In general, expectations measures should provide important additional information relative to a standard VAR analysis, since market participants presumably use a much richer information set than that assumed in a typical VAR model. The resulting innovations are easily ...
Working Paper
El Nino and world primary commodity prices: warm water or hot air?
This paper examines the historical effects of El Nio on world prices and economic activity. Although the primary focus is on world real non-oil primary commodity prices, the effects on G-7 consumer price inflation and GDP growth are also considered. This paper has several distinct advantages over previous studies. First, several econometric models are estimated using fairly broad measures of prices and economic activity. Second, the models include continuous measures of El Nio intensity (sea surface temperature and sea-level air pressure anomalies in the Pacific Ocean) rather than dummy ...
Working Paper
Bank lending and economic activity in Japan: did \"financial factors\" contribute to the recent downturn?
In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their recent impact on the Japanese economy. First, we find that proxies for financial factors enter significantly in behavioral equations for loan standards, loan demand and aggregate demand, although these proxies explain only a small amount of the variation in those variables. Second, there is some, albeit inconclusive, evidence that balance-sheet problems of households and firms contributed to Japan's recent recession. We find that exogenous declines in equity prices contributed significantly to the ...