Search Results
Journal Article
'Rational inattention' guides overloaded brains, helps economists understand market behavior
Between Internet news sources, social media and email, people are awash in information, most of it accessible at near-zero cost. Yet, humans possess only a finite capacity to process all of it. The average email user, for example, receives dozens of messages per day. The messages can?t all receive equal attention. How carefully does someone read an email from a sibling or friend before crafting a reply? How closely does a person read an email from the boss?> ; Limitations on the ability to process information force people to make choices regarding the subjects to which they pay more or less ...
Working Paper
A cross-country quarterly database of real house prices: a methodological note
We build from (mainly) publicly available national sources a database of (nominal and real) house prices?complemented with data on private disposable income (PDI)?for 19 advanced countries at a quarterly frequency, starting in the first quarter of 1975. We select a house price index for each country that is consistent with the U.S. FHFA quarterly nationwide house price index for existing single-family houses (formerly called OFHEO house price index), and extend the country series back to 1975 with available historical data whenever necessary. Each house price index is seasonallyadjusted over ...
Working Paper
Optimal monetary policy in a two country model with firm-level heterogeneity
This paper studies non-cooperative monetary policy in a two country general equilibrium model where international economic integration is endogenised through firm-level heterogeneity and monopolistic competition. Economic integration between countries is a source of policy competition, generating higher long-run inflation, and increased gains from monetary cooperation.
Working Paper
International reserves and rollover risk
This paper provides a theoretical framework for quantitatively investigating the optimal accumulation of international reserves as a hedge against rollover risk. We study a dynamic model of endogenous default in which the government faces a tradeoff between the insurance benefits of reserves and the cost of keeping larger gross debt positions. A calibrated version of our model is able to rationalize large holdings of international reserves, as well as the procyclicality of reserves and gross debt positions. Model simulations are also consistent with spread dynamics and other key macroeconomic ...
Working Paper
A real-time historical database for the OECD
Ongoing economic globalization makes real-time international data increasingly relevant, though little work has been done on collecting and analyzing real-time data for economies other than the U.S. In this paper, we introduce and examine a new international real-time dataset assembled from original quarterly releases of 13 quarterly variables presented in the OECD Main Economic Indicators from 1962 to 1998 for 26 OECD countries. By merging this data with the current OECD real-time dataset, which starts in 1999, researchers get access to a standard, up-to-date resource. To illustrate the ...
Journal Article
On the record: putting people into economic policy: a conversation with Finn Kydland
Finn Kydland, a Dallas Fed consultant since 1994, shared the 2004 Nobel Prize in economics with Edward C. Prescott for their groundbreaking work incorporating decisionmaking by individuals, households and firms into economic models.
Discussion Paper
Forecasting the end of the global recession: did we miss the early signs?
This paper looks at the term-structure literature to identify early signs predicting recessionary patterns in the U.S. and other developed economies. Based on the National Bureau of Economic Research (NBER) and Economic Cycle Research Institute (ECRI) recession dates, we define the probability of recession as a function of the traditional yield spread, plus a forward-looking measure of growth expectations, namely the output gap growth spread. For other countries, we extend the model and make it additionally dependent on the probability of recession in the U.S. Our results indicate that most ...
Working Paper
The dynamics of economics functions: modelling and forecasting the yield curve
The class of Functional Signal plus Noise (FSN) models is introduced that provides a new, general method for modelling and forecasting time series of economic functions. The underlying, continuous economic function (or "signal") is a natural cubic spline whose dynamic evolution is driven by a cointegrated vector autoregression for the ordinates (or "y-values") at the knots of the spline. The natural cubic spline provides flexible cross-sectional fit and results in a linear, state space model. This FSN model achieves dimension reduction, provides a coherent description of the observed ...
Journal Article
Estimating the macroeconomic effects of the Fed’s asset purchases
An analysis shows that the Federal Reserve?s large-scale asset purchases have been effective at reducing the economic costs of the zero lower bound on interest rates. Model simulations indicate that, by 2012, the past and projected expansion of the Fed?s securities holdings since late 2008 will lower the unemployment rate by 1 percentage points relative to what it would have been absent the purchases. The asset purchases also have probably prevented the U.S. economy from falling into deflation.
Working Paper
Pricing-to-Market, Trade Costs, and International Relative Prices
Data on international relative prices from industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in some of the recently developed quantitative models of international trade to examine whether such models can reproduce the main features of the fluctuations in international relative prices. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the U.S., it reproduces deviations from relative purchasing power ...