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Working Paper
Mortgage Choice in the Housing Boom: Impacts of House Price Appreciation and Borrower Type

The U.S. housing boom during the first part of the past decade was marked by rapid house price appreciation and greater access to mortgage credit for lower credit-rated borrowers. The subsequent collapse of the housing market and the high default rates on residential mortgages raise the issue of whether the pace of house price appreciation and the mix of borrowers may have affected the influence of fundamentals in housing and mortgage markets. This paper examines that issue in connection with one aspect of mortgage financing, the choice among fixed-rate and adjustable-rate mortgages. This ...
Working Paper Series , Paper 2014-5

Working Paper
Time-varying U.S. inflation dynamics and the New-Keynesian Phillips curve

This paper introduces a form of boundedly-rational expectations into an otherwise standard New-Keynesian Phillips curve. The representative agent's forecast rule is optimal (in the sense of minimizing mean squared forecast errors), conditional on a perceived law of motion for inflation and observed moments of the inflation time series. The perceived law of motion allows for both temporary and permanent shocks to inflation, the latter intended to capture the possibility of evolving shifts in the central bank's inflation target. In this case, the agent's optimal forecast rule defined by the ...
Working Paper Series , Paper 2006-15

Working Paper
Taylor Rule Estimation by OLS

Ordinary Least Squares (OLS) estimation of monetary policy rules produces potentially inconsistent estimates of policy parameters. The reason is that central banks react to variables, such as inflation and the output gap, that are endogenous to monetary policy shocks. Endogeneity implies a correlation between regressors and the error term – hence, an asymptotic bias. In principle, Instrumental Variables (IV) estimation can solve this endogeneity problem. In practice, however, IV estimation poses challenges, as the validity of potential instruments depends on various unobserved features of ...
Working Paper Series , Paper 2018-11

Working Paper
Country spreads and emerging countries

A number of studies have stressed the role of movements in U.S. interest rates and country spreads in driving business cycles in emerging market economies. At the same time, country spreads have been found to respond to changes in both the U.S. interest rate and domestic conditions in emerging markets. These intricate interrelationships leave open a number of fundamental questions: Do country spreads drive business cycles in emerging countries or vice versa, or both? Do U.S. interest rates affect emerging countries directly or primarily through their effect on country spreads? This paper ...
Working Paper Series , Paper 2004-32

Working Paper
Quantitative easing and Japanese bank equity values

One of the primary motivations offered by the Bank of Japan (BOJ) for its quantitative easing program -- whereby it maintained a current account balance target in excess of required reserves, effectively pegging short-term interest rates at zero -- was to maintain credit extension by the troubled Japanese financial sector. We conduct an event study concerning the anticipated impact of quantitative easing on the Japanese banking sector by examining the impact of the introduction and expansion of the policy on Japanese bank equity values. We find that excess returns of Japanese banks were ...
Working Paper Series , Paper 2006-19

Working Paper
Characterizations in a random record model with a non-identically distributed initial record

We consider a sequence of random length M of independent absolutely continuous observations Xi, 1 = i = M, where M is geometric, X1 has cdf G, and Xi, i = 2, have cdf F. Let N be the number of upper records and Rn, n = 1, be the nth record value. We show that N is free of F if and only if G(x) = G0(F (x)) for some cdf G0 and that if E (|X2|) is finite so is E |Rn|) for n = 2 whenever N = n or N = n. We prove that the distribution of N along with appropriately chosen subsequences of E(Rn) characterize F and G, and along with subsequences of E Rn - Rn-1) characterize F and G up to a common ...
Working Paper Series , Paper WP-05-05

Working Paper
Civil Liberties and Social Structure

Governments use coercion to aggregate distributed information relevant to governmental objectives—from the prosecution of regime-stability threats to terrorism or epidemics. A cohesive social structure facilitates this task, as reliable information will often come from friends and acquaintances. A cohesive citizenry can more easily exercise collective action to resist such intrusions, however. We present an equilibrium theory where this tension mediates the joint determination of social structure and civil liberties. We show that segregation and unequal treatment sustain each other as ...
Working Paper Series , Paper WP 2024-05

Working Paper
What Happened to the US Economy During the 1918 Influenza Pandemic? A View Through High-Frequency Data

Burns and Mitchell (1946, 109) found a recession of “exceptional brevity and moderate amplitude.” I confirm their judgment by examining a variety of high-frequency, aggregate and cross-sectional data. Industrial output fell sharply but rebounded within months. Retail seemed little affected and there is no evidence of increased business failures or stressed financial system. Cross-sectional data on manufacturing employment indicates that most of the recession, brief as it was, was due to the Armistice rather than the epidemic. Data from the nationwide coal industry documents the sharp but ...
Working Paper Series , Paper WP-2020-11

Working Paper
The impact of financial frictions on a small open economy: when current account borrowing hits a limit

The evidence of the last 20 years of recurring output busts and rapid reversals of the current account in emerging markets indicates that domestic agents may not be able to borrow in international capital markets to fully insure themselves against internal and external shocks. This paper models this phenomenon as a form of excess volatility by introducing a financial friction into a stochastic model of a small open economy. The financial friction limits the current account deficit to a fixed fraction of gross domestic product. The paper shows that conditional volatility and asymmetry are ...
Working Paper Series , Paper 2002-15

Working Paper
The effects of geographic expansion on bank efficiency

We assess the effects of geographic expansion on bank efficiency using cost and profit efficiency for over 7,000 U.S. banks, 1993-1998. We find that parent organizations exercise some control over the efficiency of their affiliates, although this control tends to dissipate with distance to the affiliate. However, on average, distance-related efficiency effects tend to be modest, suggesting that some efficient organizations can overcome any effects of distance. The results imply there may be no particular optimal geographic scope for banking organizations - some may operate efficiently within ...
Working Paper Series , Paper WP-00-14

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