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Bank:Board of Governors of the Federal Reserve System (U.S.)  Series:International Finance Discussion Papers 

Working Paper
Missing Import Price Changes and Low Exchange Rate Pass-Through

A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we ...
International Finance Discussion Papers , Paper 1040

Working Paper
Post-simulation analysis of Monte Carlo experiments: interpreting Pesaran's (1974) study of non-nested hypothesis test statistics

"Monte Carlo experimentation in econometrics helps 'solve' deterministic problems by simulating stochastic analogues in which the analytical unknowns are reformulated as parameters to be estimated." (Hendry (1980) With that in mind, Monte Carlo studies may be divided operationally into three phases: design, simulation, and post-simulation analysis. This paper provides a guide to the last of those three, post-simulation analysis, given the design and simulation of a Monte Carlo study, and uses Pesaran's (1974) study of statistics for testing non-nested hypotheses to illustrate the techniques ...
International Finance Discussion Papers , Paper 276

Working Paper
Patent-Based News Shocks

We exploit firm-level data on patent grants and subsequent reactions of stocks to identify technological news shocks. Changes in stock market valuations due to announcements of individual patent grants represent expected future increases in the technology level, which we refer to as patent-based news shocks. Our patentbased news shocks resemble diffusion news, in that they do not affect total factor productivity in the short run but induce a strong permanent effect after five years. These shocks produce positive comovement between consumption, output, investment, and hours. Unlike the ...
International Finance Discussion Papers , Paper 1277

Working Paper
Assessing international interdependence with a multi-country model

International Finance Discussion Papers , Paper 138

Working Paper
A quantitative reassessment of the purchasing power parity hypothesis : evidence from Norway and the United Kingdom

International Finance Discussion Papers , Paper 231

Working Paper
Frequency of observation and the estimation of integrated volatility in deep and liquid financial markets

Using two newly available ultrahigh-frequency datasets, we investigate empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. Using volatility signature plots and a recently-proposed formal decision rule to select the sampling frequency, we find that one can sample FX returns as frequently as once every 15 to 20 seconds without contaminating volatility estimates; bond returns may be sampled as frequently as once every 2 to 3 minutes on days without ...
International Finance Discussion Papers , Paper 905

Working Paper
Why Has the Stock Market Risen So Much Since the US Presidential Election?

This paper looks at the evolution of U.S. stock prices from the time of the Presidential elections to the end of 2017. It concludes that a bit more than half of the increase in the aggregate U.S. stock prices from the presidential election to the end of 2017 can be attributed to higher actual and expected dividends. A general improvement in economic activity and a decrease in economic policy uncertainty around the world were the main factors behind the stock market increase. The prospect and the eventual passage of the corporate tax bill nevertheless played a role. And while part of the rise ...
International Finance Discussion Papers , Paper 1235

Working Paper
Uncertainty, Curreny Exess Returns, and Risk Reversals

In this paper we provide strong evidence that heightened uncertainty in the U.S. real economy or financial markets significantly raises excess returns to the currency carry trade. We posit that this works through the influence of uncertainty on global investors' risk preferences. Macro and financial uncertainty also lower foreign exchange risk reversals, an effect that is particularly strong for high interest rate portfolios. Our results are consistent with the idea that an increase in uncertainty regarding the U.S. economy or financial markets increases investors' risk aversion, which in ...
International Finance Discussion Papers , Paper 1196

Working Paper
An empirical analysis of policy coordination in the United States, Japan and Europe

Coordination of macroeconomic policy has been a major topic at recent summit meetings, and has been the subject of a number of theoretical studies. However, relatively little empirical research exists on policy coordination. This paper is an attempt to help fill this gap. The paper considers the quantitative importance of the coordination of fiscal and monetary policy under flexible exchange rates. We also evaluate the mechanisms by which the effects of macroeconomic policy are transmitted abroad. The nature of the equilibrium reached in the absence of coordination is also analyzed, and the ...
International Finance Discussion Papers , Paper 286

Working Paper
Asymmetric shocks in a currency union with monetary and fiscal handcuffs?

This paper investigates the impact of the asymmetric shocks within a currency union in a framework that takes account of the zero bound constraint on policy rates, and also allows for constraints on fiscal policy. In this environment, we document that the usual optimal currency argument showing that the effects of shocks are mitigated to the extent that they are common across member states can be reversed. Countries can be worse off when their neighbors experience similar shocks, including policy-driven reductions in government spending.
International Finance Discussion Papers , Paper 1012

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