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Bank:Federal Reserve Bank of San Francisco  Series:Working Paper Series 

Working Paper
Macroeconomic implications of changes in the term premium

Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. We investigate these implications using both a structural model and a reduced-form framework. We show that there is no structural relationship running from the term premium to economic activity, but a reduced-form empirical analysis does suggest that a decline in the term premium has typically been associated with stimulus to real economic activity, which contradicts earlier results in the literature.
Working Paper Series , Paper 2006-46

Working Paper
The Olympic effect

Economists are skeptical about the economic benefits of hosting "mega-events" such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policymakers and the population, who are typically quite enthusiastic about such spectacles. In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national ...
Working Paper Series , Paper 2009-06

Working Paper
Assessing the Lucas critique in monetary policy models

Empirical estimates of monetary policy rules suggest that the behavior of U.S. monetary policymakers changed during the past few decades. However, at the same time, statistical analyses of lagged representations of the economy, such as VARs, often have not rejected the null of structural stability. These two sets of empirical results appear to contradict the Lucas critique. This paper provides a reconciliation by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of ...
Working Paper Series , Paper 2002-02

Working Paper
A black swan in the money market

At the center of the financial market crisis of 2007-2008 was a highly unusual jump in spreads between the overnight inter-bank lending rate and term London inter-bank offer rates (Libor). Because many private loans are linked to Libor rates, the sharp increase in these spreads raised the cost of borrowing and interfered with monetary policy. The widening spreads became a major focus of the Federal Reserve, which took several actions--including the introduction of a new term auction facility (TAF)--to reduce them. This paper documents these developments and, using a no-arbitrage model of the ...
Working Paper Series , Paper 2008-04

Working Paper
Seawalls and Stilts: A Quantitative Macro Study of Climate Adaptation

Can we reduce the damage from climate change by investing in seawalls, stilts, or otherforms of adaptation? Focusing on the case of severe storms in the US, I develop a macroheterogeneous-agent model to quantify the interactions between adaptation, federal disaster policy, and climate change. The model departs from the standard climate damage function and incorporates the damage from storms as the realization of idiosyncratic shocks.I find that while the moral hazard effects from disaster aid reduce adaptation in the USeconomy, federal subsidies for investment in adaptation more than correct ...
Working Paper Series , Paper 2021-07

Working Paper
The effect of an employer health insurance mandate on health insurance coverage and the demand for labor: evidence from Hawaii

Over the past few decades, policy makers have considered employer mandates as a strategy for stemming the tide of declining health insurance coverage. In this paper we examine the long term effects of the only employer health insurance mandate that has ever been enforced in the United States, Hawaii's Prepaid Health Care Act, using a standard supply-demand framework and Current Population Survey data covering the years 1979 to 2005. During this period, the coverage gap between Hawaii and other states increased, as did real health insurance costs, implying a rising burden of the mandate on ...
Working Paper Series , Paper 2009-08

Working Paper
Convergence and anchoring of yield curves in the Euro area

We study the convergence of European bond markets and the anchoring of inflation expectations in euro area countries using high-frequency bond yield data for France, Germany, Italy and Spain. We find that Economic and Monetary Union (EMU) has led to substantial convergence in euro area sovereign bond markets in terms of interest rate levels, unconditional daily fluctuations, and conditional responses to major macroeconomic data announcements. Our findings also suggest a substantial increase in the anchoring of long-term inflation expectations since EMU, particularly for Italy and Spain, which ...
Working Paper Series , Paper 2007-24

Working Paper
Anchored Inflation Expectations and the Flatter Phillips Curve

Conventional versions of the Phillips curve cannot account for inflation dynamics during and after the U.S. Great Recession, leading many to conclude that the Phillips curve relationship has weakened or even disappeared. We show that if agents solve a signal extraction problem to disentangle temporary versus permanent shocks to inflation, then agents? inflation expectations should have become more ?anchored? over the Great Moderation period. An estimated New Keynesian Phillips curve that accounts for the increased anchoring of expected inflation exhibits a stable slope coefficient over the ...
Working Paper Series , Paper 2019-27

Working Paper
Currency Manipulation

We propose a novel, risk-based transmission mechanism for the effects of currency manipulation: policies that systematically induce a country?s currency to appreciate in bad times, lower its risk premium in international markets and, as a result, lower the country?s risk-free interest rate and increase domestic capital accumulation and wages. Currency manipulations by large countries also have external effects on foreign interest rates and capital accumulation. Applying this logic to policies that lower the variance of the bilateral exchange rate relative to some target country (?currency ...
Working Paper Series , Paper 2016-15

Working Paper
Explaining Exchange Rate Anomalies in a Model with Taylor-Rule Fundamentals and Consistent Expectations

We introduce a form of boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. We postulate that agents augment a lagged-information random walk forecast with a term that relates to news about Taylor-rule fundamentals. We solve for a ?consistent expectations equilibrium,? in which the coefficient on fundamental news in the agent?s forecast rule is pinned down using the moments of observable data. The forecast errors observed by the agent are close to white noise, making it di ...
Working Paper Series , Paper 2014-22

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