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Series:Working Papers in Applied Economic Theory  Bank:Federal Reserve Bank of San Francisco 

Working Paper
What do money market models tell us about how to implement monetary policy: reply
AUTHORS: Scadding, John L.; Judd, John P.
DATE: 1982

Working Paper
The search for a stable money demand function: a survey of the post- 1973 literature
AUTHORS: Scadding, John L.; Judd, John P.
DATE: 1982

Working Paper
Dynamic adjustment in the demand for money: tests of alternative hypotheses
AUTHORS: Scadding, John L.; Judd, John P.
DATE: 1982

Working Paper
Estimating dynamic rational expectations models when the trend specification is uncertain
This paper explores various strategies for estimating rational expectations models when the trend specification is uncertain. One approach modified the likelihood function in order to reduce the influence of low-frequency dynamics. Hansen and Sargent (1993) conjectured that this would have little cost in correctly specified models and would improve estimated in mis-specified models. This paper confirms the first part of their conjecture but not the second. Contrary to intuition, the effects of trend-specification errors are spread across the entire frequency domain and are not confined to low-frequencies. Hence, deleting low-frequency dynamics does not remove the specification error. Another approach seeks a representation of the approximating model that does not condition on a specification of the trend, and it estimated parameters by GMM. This approach compares favorably with MLS when the trend is correctly specified and is superior when the trend is mis-specified.
AUTHORS: Cogley, Timothy
DATE: 1996

Working Paper
Capital flows and macroeconomic management: tequila lessons
AUTHORS: Calvo, Guillermo A.
DATE: 1996

Working Paper
Monetary union and macroeconomic stabilization
AUTHORS: Buiter, Willem H.; Kletzer, Kenneth M.
DATE: 1996

Working Paper
Expectations, traps and discretion
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy to exogenous shocks to be self-fulfilling. Among the many equilibria that are possible, some have good welfare properties. But, others exhibit welfare decreasing volatility in output and employment. We refer to the latter type of equilibria as expectation traps. In effect, our paper presents a new argument for commitment in monetary policy because commitment eliminates these bad equilibria. We show that full commitment is not necessary to achieve the best outcome, and that more limited forms of commitment suffice.
AUTHORS: Christiano, Lawrence J.; Eichenbaum, Martin; V.V. Chari
DATE: 1996

Working Paper
Do measures of monetary policy in a VAR make sense?
No. In many VARs, monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables. Such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the Fed's reaction function; furthermore, the residuals from these regressions have little correlation with funds rate shocks that are derived from forward-looking financial markets.
AUTHORS: Rudebusch, Glenn D.
DATE: 1996

Working Paper
Measuring the liquidity effect
This paper develops a measure of the immediate effect on the federal funds rate of an open market operation. Because open market operations are often responses to current or anticipated economic developments, there is a serious problem of simultaneous equations bias in measuring this effect. This paper resolves this problem by developing a proxy for the errors the Federal Reserve makes in forecasting the extent to which Treasury operations will add or drain reserves available to private banks. These errors induce fluctuations in bank reserve which have measurable consequences for the federal funds rate. The paper estimates that a daily decline in nonborrowed reserves of $30 million, if sustained for an entire 14-day reserve maintenance period, will cause the federal funds rate to rise by 10 basic points.
AUTHORS: Hamilton, James D.
DATE: 1996

Working Paper
Inequality and stability
This paper analyzes how political stability depends on economic factors. Fluctuations in groups' economic capacities and in their abilities to engage in rent-seeking or predatory behavior create periodic incentives for those groups to renege on their social obligations. A constitution remains in force so long as no party wishes to defect to the noncooperative situation, and it is reinstituted as soon as each party finds it to its advantage to revert to cooperation. Partnerships of equals are easier to sustain than are arrangements in which one party is more powerful in some economic or noneconomic trait. In this sense, inequality is bad for social welfare. Surprisingly, perhaps, it is the rich, and not the poor segments of society who in our model pose the threat to the stability of the social order. Using cross-country data, we test and confirm the prediction that most constitutional disruptions should be accompanied by increases in income inequality.
AUTHORS: Jovanovic, Boyan; Spiegel, Mark M.; A. S. Pinto Barbosa
DATE: 1996

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