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Working Paper
Regime switching in the dynamic relationship between the federal funds rate and nonborrowed reserves
This paper examines the dynamic relationship between changes in the funds rate and nonborrowed reserves within a reduced form framework that allows the relationship to have two distinct patterns over time. A regime switching model a la Hamilton (1989) is estimated. The two regimes are different in such characteristics as average changes in the interest rate, and volatility. The historical aerate of the API inflation rate is significantly higher in the high growth and more volatile regime. Innovations in money growth are associated with a strong anticipated inflation effect in the high ...
Journal Article
Federal Reserve credibility and inflation scares
We develop a simple, quantitative model of the U.S. economy to demonstrate how an "inflation scare " may occur when the Federal Reserve lacks full credibility. In particular, we show that the long-term nominal interest rate may undergo a sudden increase if an adverse movement in the inflation rate triggers a deterioration in the public's beliefs about the Federal Reserve's commitment to maintaining low inflation in the future. We find that simulations from our model capture some observed patterns of U.S. interest rates in the 1980s.
Working Paper
Expectations, credibility, and disinflation in a small macroeconomic model
A study of the effects of expectations and central bank credibility on the economy's dynamic transition path during a disinflation. Using a version of the Fuhrer-Moore model, it compares simulations under different specifications that vary according to the way expectations are formed and the degree of central bank credibility.
Journal Article
Modeling the time-series behavior of the aggregate wage rate
This paper looks at the time-series behavior of the real wage relative to that of productivity. Given an exogenous, nonstationary process for productivity, we use a simple model of dynamic labor demand to show that the real wage and the marginal product of labor will be cointegrated if the representative firm chooses the profit-maximizing level of employment. Data for the postwar period satisfy this condition. On the basis of this result we estimate a vector error correction model containing prices, wages, and productivity and examine the dynamic relationships among these variables. This ...
Working Paper
Some evidence on the efficacy of the UK inflation targeting regime: an out-of-sample forecast approach
Inflation targeting (IT)--a policy framework that directly targets an explicit inflation goal--has gained widespread attention recently as it has been adopted by several OECD countries. There is a growing body of literature on the ultimate long-term benefits of price stability and on theoretical issues related to inflation targeting. But the short duration of this practice has limited the number of works that empirically analyze the performance of IT regimes. This paper examines the British inflation targeting experience since 1993 by focusing on the out-of-sample forecast performance of ...
Journal Article
Political business cycles
Journal Article
1989 Fall Academic Conference
Journal Article
How bad is the \\"bad loan problem\\" in Japan?
Journal Article
Interest rate spreads as indicators for monetary policy
Journal Article
Labor market structure and monetary policy