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Series:International Finance Discussion Papers 

Working Paper
The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations

We develop an estimated model of the U.S. economy in which agents form expectations by continually updating their beliefs regarding the behavior of the economy and monetary policy. We explore the effects of policymakers' misperceptions of the natural rate of unemployment during the late 1960s and 1970s on the formation of expectations and macroeconomic outcomes. We find that the combination of monetary policy directed at tight stabilization of unemployment near its perceived natural rate and large real-time errors in estimates of the natural rate uprooted heretofore quiescent inflation ...
International Finance Discussion Papers , Paper 804

Working Paper
Commodity price movements in a general equilibrium model of storage

We embed the canonical rational expectations competitive storage model into a general equilibrium framework thereby allowing the non-linear commodity price dynamics implied by the competitive storage model to interact with the broader macroeconomy. Our main result is that the endogenous movement in interest rates implied under general equilibrium enhances the effects of competitive storage on commodity prices. Compared to a model in which the real interest rate is fixed, we find that storage in general equilibrium leads to more persistence in commodity prices and somewhat lower volatility. ...
International Finance Discussion Papers , Paper 1054

Working Paper
Global versus country-specific productivity shocks and the current account

For G-7 countries over the period 1961-1990, there appears to be a strong and stable negative correlation between annual changes in the current account and investment. Here we explore this correlation using a highly tractable empirical model that distinguishes between global and country-specific shocks. This distinction turns out to be quite important empirically, as global shocks account for roughly fifty percent of the overall variance of productivity. An apparent puzzle, however, is that the current account seems to respond by much less than investment to country-specific productivity ...
International Finance Discussion Papers , Paper 443

Working Paper
Constrained suboptimality in economies with limited communication

Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication constraints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained Pareto suboptimal. Thus equilibria of economies with voluntary unemployment, search, or other types of limits on communication are unlikely to be Pareto optimal, even in the absence of moral hazard, adverse selection, or search externalities.
International Finance Discussion Papers , Paper 497

Working Paper
The optimal degree of commitment to an intermediate monetary target: inflation gains versus stabilization costs

International Finance Discussion Papers , Paper 230

Working Paper
Does monetary policy keep up with the Joneses? Optimal interest-rate smoothing with consumption externalities

Changes in monetary policy are typically implemented gradually, an empirical observation known as interest-rate smoothing. We propose the explanation that time-non-separable preferences may render interest-rate smoothing optimal. We find that when consumers have "catching-up-with-the-Joneses" preferences, optimal monetary policy reacts gradually to shocks to prevent inefficiently fast adjustments in consumption. We also extend our basic model to investigate the effects of capital formation and nominal rigidities on the dynamics of optimal monetary policy. Optimal policy responses continue ...
International Finance Discussion Papers , Paper 812

Working Paper
Transitory terms-of-trade shocks and the current account: the case of constant time preference

International Finance Discussion Papers , Paper 194

Working Paper
Monetary Policy in a Model of Growth

Empirical evidence suggests that recessions have long-run effects on the economy's productive capacity. Recent literature embeds endogenous growth mechanisms within business cycle models to account for these "scarring" effects. The optimal conduct of monetary policy in these settings, however, remains largely unexplored. This paper augments the standard sticky-price New Keynesian (NK) to allow for endogenous dynamics in aggregate productivity. The model has a representation similar to the two-equation NK model, with an additional condition linking productivity growth to current and expected ...
International Finance Discussion Papers , Paper 1340

Working Paper
Monetary Policy, Housing Rents and Inflation Dynamics

International Finance Discussion Papers , Paper 1248

Working Paper
An assessment of the impact of Japanese foreign exchange intervention: 1991-2004

We analyze the short-term price impact of Japanese foreign exchange intervention operations between 1991 and 2004, using official data from Japan's Ministry of Finance. Over the period as a whole, we find some evidence of a modest "against the wind" effect, but interventions do not have value as a forecast that the exchange rate will move in a direction consistent with the operations. Interventions conducted between 1995 and 2002, which were large and infrequent, met with a much higher degree of success. For the most recent episode of intervention, in 2003 and 2004, despite the record size ...
International Finance Discussion Papers , Paper 824

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