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Working Paper
Exact and approximate multi-period mean-square forecast errors for dynamic econometric models
Both future disturbances and estimated coefficients contribute to the uncertainty in model-based ex ante forecasts, but only the first source is usually taken into account when calculating confidence intervals for practical applications. Schmidt (1974) and Baillie (1979) provide an easily computable second-order approximation to the mean-square forecast error (MSFE) for linear dynamic systems which recognizes both sources of uncertainty. To assess the accuracy of their approximation, and thus its usefulness, we compare it with three sets of estimates of the exact MSFE for the univariate AR(l) ...
Working Paper
The international transmission of oil price effects
Conference Paper
Design of model simulations
Working Paper
Measurement matters for modeling U.S. import prices
We focus on capturing the increasingly important role that emerging economies play in determining U.S. import prices. Emerging market producers differ from others in two respects: (1) their cost structure is well below that of developed-market producers, and (2) their wide profit margins induce pricing policies that seek to exhaust production capacity. We argue that these features have dampened the short-run responses of import prices to changes in the value of the dollar but that they have not altered the associated long-run response. To capture these considerations, we develop a new method ...
Working Paper
An empirical analysis of inflation in OECD countries
One of the most remarkable macroeconomic developments of the past decade has been the widespread decline in inflation despite declines in unemployment rates. For the United States, these seemingly contradictory developments have been reconciled in terms of three factors: (1) an acceleration in productivity, (2) structural changes in labor markets that lowered the natural unemployment rate (NAIRU), and (3) improved credibility of monetary policy. Here we ask whether comparable factors were at work in foreign industrial countries. To address this question, we empirically characterize the ...
Working Paper
Exchange rate pass-through to U.S. import prices: some new evidence
This paper documents a sustained decline in exchange rate pass-through to U.S. import prices, from above 0.5 during the 1980s to somewhere in the neighborhood of 0.2 during the last decade. This decline in the pass-through coefficient is robust to the measure of foreign prices that is included in the regression (i.e., CPI versus PPI), whether the estimation is done in levels or differences, and whether U.S. prices are included as an explanatory variable. Notably, the largest estimates of pass-through are obtained when commodity prices are excluded from the regression. In this case, the ...
Working Paper
A century of trade elasticities for Canada, Japan, and the United States
Virtually all that is known about the behavior of imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of trade over the last century cannot avoid asking whether the postwar period provides enough information to characterize that behavior. Indeed, the literature ignoring that past offers a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, and the ...
Working Paper
Oil price effects in theory and practice
Working Paper
Currency substitution and the new divisia monetary aggregates : the U. S. case
The purpose of this paper is to examine the extent to which the behavior of aggregate money holdings is influenced by foreign exchange considerations, an influence that has been labeled as currency substitution. Knowledge of the extent to which monies of different countries can substitute for each other is important for the design and implementation of monetary policy. However, existing empirical analyses of currency substitutions rest on official estimates of money holdings which imply an infinite elasticity of substitution between different monetary assets. Analyses of economic monetary ...