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Series:Working Papers  Bank:Federal Reserve Bank of Minneapolis 

Working Paper
Sticky prices and sectoral real exchange rates

The classic explanation for the persistence and volatility of real exchange rates is that they are the result of nominal shocks in an economy with sticky goods prices. A key implication of this explanation is that if goods have differing degrees of price stickiness then relatively more sticky goods tend to have relatively more persistent and volatile good-level real exchange rates. Using panel data, we find only modest support for these key implications. The predictions of the theory for persistence have some modest support: in the data, the stickier is the price of a good the more persistent ...
Working Papers , Paper 656

Working Paper
A test of the exogeneity of national variables in a regional econometric model

Many regional econometric models are estimated under the maintained assumption that certain national variables are exogenous with respect to the regional variables in the models. This exogeneity assumption is testable using time series methods of inference, yet, to my knowledge, no regional model has been so tested. In this paper, I test the national exogeneity assumption included in the specification of a particular regional forecasting model. Such a test is, I believe, a necessary and important step in the construction of any econometric model.
Working Papers , Paper 124

Working Paper
New evidence on state banking before the Civil War

Prior to the Civil War there were three major differences among states in how U.S. banks were regulated: (1) Whether they were established by charter or under free-banking laws. (2) Whether they were permitted to branch. (3) Whether the state established a state-owned bank. I use a census of the state banks that existed in the United States prior to the Civil War that I recently constructed to determine how these differences in state regulation affected the banking outcomes in these states. Specifically, I determine differences in banks per capita by state over time; bank longevities ...
Working Papers , Paper 642

Working Paper
Clearing arrangements in the United States before the Federal Reserve System

This paper examines two different clearing arrangements for bank liabilities. One was a profit-maximizing private entity, the Suffolk Banking System. It cleared notes for New England banks between 1827 and 1858. The other was a nonprofit collective, the clearinghouses organized in many cities beginning in 1853. The paper examines how well these arrangements prevented bank failures and acted as lenders of last resort. It finds the Suffolk system had fewer failures but acted less like a lender of last resort. It argues that these differences can be explained by the different incentives facing ...
Working Papers , Paper 695

Working Paper
Interstate migration has fallen less than you think: consequences of hot deck imputation in the Current Population Survey

We show that the significant drop in the annual interstate migration rate between the 2005 and 2006 Current Population Surveys is a statistical artifact. The Census Bureau?s imputation procedure for dealing with missing data before the 2006 survey year inflated the estimated interstate migration rate. An undocumented change in the procedure corrected the problem for the 2006 and later surveys, thus reducing the estimated migration rate. The change in imputation procedures explains 90 percent of the reported decrease in interstate migration between 2005 and 2006, and 42 percent of the decrease ...
Working Papers , Paper 681

Working Paper
Optimal capital income taxation with incomplete markets, borrowing constraints, and constant discounting

For a wide class of dynamic models, Chamley (1986) has shown that the optimal capital income tax rate is zero in the long run. Lucas (1990) has argued that for the U.S. economy there is a significant welfare gain from switching to this policy. We show that for the Bewley (1986) class of models with heterogeneous agents and incomplete markets (due to uninsured idiosyncratic shocks), and borrowing constraints the optimal tax rate on capital income is positive even in the long run. Quantitative analysis of a parametric version of such a model suggests that one cannot dismiss the possibility that ...
Working Papers , Paper 508

Working Paper
Interest rates and prices in the long run: a study of the Gibson paradox

Working Papers , Paper 75

Working Paper
Stopping moderate inflations: the methods of Poincaré and Thatcher

Working Papers , Paper 1

Working Paper
The Pass-Through of Sovereign Risk

This paper examines the macroeconomic implications of sovereign credit risk in a business cycle model where banks are exposed to domestic government debt. The news of a future sovereign default hampers financial intermediation. First, it tightens the funding constraints of banks, reducing their available resources to finance firms (liquidity channel). Second, it generates a precautionary motive for banks to deleverage (risk channel). I estimate the model using Italian data, finding that i) sovereign credit risk was recessionary and that ii) the risk channel was sizable. I then use the model ...
Working Papers , Paper 722

Working Paper
Categories of criticism of the rational expectations theory

Working Papers , Paper 49

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