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

Working Paper
Federal Reserve interest rate targeting, rational expectations, and the term structure

The amount of information in the yield curve for forecasting future changes in short rates varies with the maturity of the rates involved. Indeed, spreads between certain long and short rates appear unrelated to future changes in the short rate--contrary to the rational expectations hypothesis of the term structure. This paper estimates a daily model of Federal Reserve interest rate targeting behavior, which, accompanied by the maintained hypothesis of rational expectations, explains the varying predictive ability of the yield curve and elucidates the link between Fed policy and the term ...
Working Papers in Applied Economic Theory , Paper 95-02

Working Paper
The mirage of fixed exchange rates

This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises.
Working Papers in Applied Economic Theory , Paper 95-08

Working Paper
A model of the employment effects of a local labor tax

Working Papers in Applied Economic Theory , Paper 86-09

Working Paper
The impact of monetary targeting in the United States, 1976-1984

Working Papers in Applied Economic Theory , Paper 87-04

Working Paper
Forecasting industrial production using models with business cycle asymmetry

This paper exploits business cycle asymmetry observed in data, namely, a systematic shift in the dynamic relationship between the output and the interest rate spread across expansionary and contractionary periods in forecasting monthly industrial production. A bivariate model of monthly industrial production and the spread between the 6-month commercial paper and the federal funds rates is used as an example to illustrate forecast exercise. This paper's method does not require a forecaster to make an exact ex-ante determination of turning points in the output series which is being forecasted. ...
Working Papers in Applied Economic Theory , Paper 93-12

Working Paper
The importance of capital formation in the recent productivity slowdown

Working Papers in Applied Economic Theory , Paper 104

Working Paper
How independent should a central bank be?

The case for an independent central bank is becoming increasingly accepted. This new orthodoxy is based on three foundations: the success of the Bundesbank and the German economy over the past forty years; the theoretical academic literature on the inflationary bias of discretionary policy-making; and the empirical academic literature on central bank independence (CBI). The purpose of this paper is to examine each of the three legs of the argument for increased CBI. ; First we examine the empirical evidence on the relationship between CBI and economic performance. In this context, we compare ...
Working Papers in Applied Economic Theory , Paper 94-05

Working Paper
A comparison of discount rate models using international stock market data

This paper compares the ability of four discount rate models to explain the cross-sectional and time-series variation of stock returns in the U.S., Japan, England, Germany, and Canada. The data consist of quarterly returns (in dollars) on Morgan Stanley's Capital International indices for the period 1972 through 1991. The following four models are considered: (1) A consumption CAPM model, linking the discount rate to the intertemporal marginal rate of substitution in consumption, (2) A production CAPM model, linking the discount rate to the intertemporal marginal rate of transformation in ...
Working Papers in Applied Economic Theory , Paper 94-15

Working Paper
Location and the growth of nations

Does a country's (long-term) growth depend upon what happens in countries that are nearby? Such linkages could occur for a variety of reasons, including demand and technology spillovers. We present a series of tests to determine the existence of such relationships and the forms that they might take. We find that a country's growth rate is closely related to that of nearby countries, and show that this correlation reflects more that the existence of common shocks. Trade alone does not appear responsible for these linkages either. In addition, we find that being near a large market ...
Working Papers in Applied Economic Theory , Paper 97-02

Working Paper
Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits

Previous tests of intertemporal budget balance and present value relationships have generally assumed either a constant discount rate or a constant expected discount rate. Empirical applications of these tests to the study of U.S. government deficits have produced conflicting results. This paper extends this recent work by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive. ; We use our test to ask whether the U.S. budget and current account deficits are sustainable. Using postwar annual data, we ...
Working Papers in Applied Economic Theory , Paper 88-03




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