Search Results
Journal Article
U.S. foreign indebtedness: are we investing what we borrow?
Working Paper
Exchange rate forecasting: the errors we've really made
We examine the forecasting performance of standard macro models of exchange rates in real time, using dozens of different vintages of the OECD's Main Economic Indicators database. We calculate out-of-sample forecasts as they would have been made at the time, and compare them to a random walk alternative. The resulting "time series" of forecast performance indicates that both data revisions and changes in the sample period typically have large effects on exchange rate predictability. We show that the favorable evidence of long-horizon exchange rate predictability for the DM and Yen in Mark ...
Journal Article
An investigation of co-movements among the growth rates of the G-7 countries
Early in 2000, after a decade of economic expansion, growth began to slow simultaneously in the large, advanced economies known as the Group of Seven (G-7)--Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The general slide in GDP growth fueled speculation that a period was emerging in which broad movements in the economies of the industrialized countries would be more closely linked. Proponents of this view argued that greater trade in goods and financial markets was leading to a greater synchronization of national economies. A rise in the co-movement of GDP ...
Working Paper
Is inflation targeting best-practice monetary policy?
We describe the inflation targeting framework (ITF) and compare it against hypothetical best-practice based on optimization. The core requirements of the ITF are an explicit long-run inflation goal and a commitment to transparency in policymaking. Advocates and practitioners of the ITF have made many contributions to clear goal setting and communication by central banks. However, we contend that ITF communication policies both as advocated and practiced often have some elements that either obfuscate or, in some cases, explicitly contradict the dictates of optimization in a ...
Working Paper
General-to-specific procedures for fitting a data-admissible, theory- inspired, congruent, parsimonious, encompassing, weakly-exogenous, identified, structural model to the DGP: a translation and critique
We characterize the LSE approach by its implications for reduced-form modeling and structural interpretations. Much of what has come to be associated with the LSE methodology involves the approach to fitting reduced forms, and can be thought of as a pragmatic solution to problems created by short samples plagued by serial correlation. The policy analysis one might be able to do with an LSE model, on the other hand, hinges on structural identification arguments which do not meet the classic Cowles Commission standards, and is thus suspect.
Working Paper
Monetary policy's role in exchange rate behavior
While much empirical work has addressed the role of monetary policy shocks in exchange rate behavior, conclusions have been clouded by the lack of plausible identifying assumptions. We apply a recently developed inference procedure allowing us to relax dubious identifying assumptions. This work overturns some earlier results and strengthens others: i) Contrary to earlier findings of "delayed overshooting," the peak exchange rate effect of policy shocks may come nearly immediately after the shock; ii) In every otherwise reasonable identification, monetary policy shocks lead to large ...
Working Paper
Identifying the effects of monetary policy shocks on exchange rates using high frequency data
This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.
Working Paper
Credit spreads as predictors of real-time economic activity: a Bayesian Model-Averaging approach
Employing a large number of financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. The indicators include credit spreads based on portfolios--constructed directly from the secondary market prices of outstanding bonds--sorted by maturity and credit risk. Relative to an autoregressive benchmark, BMA yields consistent improvements in the prediction of the cyclically-sensitive measures of economic activity at horizons from the current quarter out to four quarters hence. The gains in forecast accuracy are statistically significant and ...
Working Paper
Block distributed methods for solving multi-country econometric models.
This paper examines variations on a baseline Fair-Taylor algorithm used to solve multi-country, rational expectations models. One notable feature of these variations is the ability to exploit small-scale distributed processing using a network of workstations or PCs. Using four processors to solve MX-4 (152 endogenous variables), the largest speedup factor relative to Fair-Taylor is 59; for RE-7 (978 endogenous variables) the maximum speedup factor is 12.