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Bank:Federal Reserve Bank of St. Louis  Series:Working Papers 

Working Paper
Nonlinear relationship between permanent and transitory components of monetary aggregates and the economy

This paper uses several methods to study the interrelationship among Divisia monetary aggregates, prices, and income, allowing for nonstationary, nonlinearities, asymmetries, and time-varying relationships among the series. We propose a multivariate regime switching unobserved components model to obtain transitory and permanent components for each series, allowing for potential recurrent and structural changes in their dynamics. Each component follows distinct two-state Markov processes representing low or high phases. Since the lead-lag relationship between the phases can vary over time, ...
Working Papers , Paper 2013-018

Working Paper
Markov-Perfect Risk Sharing, Moral Hazard and Limited Commitment

We define, characterize and compute Markov-perfect risk-sharing contracts in a dynamic stochastic economy with endogenous asset accumulation and simultaneous limited commitment and moral hazard frictions. We prove that Markov-perfect insurance contracts preserve standard properties of optimal insurance with private information and are not more restrictive than a long-term contract with one-sided commitment. Markov-perfect contracts imply a determinate asset time-path and a non-degenerate long-run stationary wealth distribution. We show numerically that Markov-perfect contracts provide sizably ...
Working Papers , Paper 2011-030

Working Paper
U.S. official forecasts of Group of Seven economic performance, 1976-90

In this paper, we evaluate the accuracy of the U.S. Treasury Department forecasts of real growth and inflation from 1976 to 1990 for the Group of Seven (G-7) economies. The accuracy of these forecasts is measured against the standard of actual real world growth and inflation as subsequently published in the Treasury's World Economic Outlook (WEO). The primary comparison is to forecasts made by the OECD for each of the G-7 nations, but for the United States and Canada, we compare the forecasts to those made by the Blue Chip consensus and the Federal Reserve 'Greenbook'.
Working Papers , Paper 1994-030

Working Paper
Diverging Tests of Equal Predictive Ability

We investigate claims made in Giacomini and White (2006) and Diebold (2015) regarding the asymptotic normality of a test of equal predictive ability. A counterexample is provided in which, instead, the test statistic diverges with probability one under the null.
Working Papers , Paper 2019-018

Working Paper
The development of explanatory economic hypotheses for monetary management

Working Papers , Paper 1968-005

Working Paper
Flight to What? — Dissecting Liquidity Shortages in the Financial Crisis

We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle. When calibrated to match the U.S. aggregate output fluctuations and bond premiums, the model reveals that a sharp reduction in the quality, instead of the liquidity, of private assets was the culprit of the recent financial crisis, consistent with the perception that it was the subprime ...
Working Papers , Paper 2017-25

Working Paper
Monetary policy and the determination of the interest rate and exchange rate in a small open economy with increasing capital mobility

This paper presents a general model of the determination of the interest rate and the exchange rate which is relevant for a small economy with any degree of capital mobility. The model is tested by using the quarterly data of Korea and Singapore. The emperical results show that in the Korean case changes in money supply affect the interest rate, but do not affect the exchange rate, while in the case of Singapore the domestic interest rate is determined by the foreign interest rate and the expected change in the exchange rate, as well as by changes in the money supply; changes in the money ...
Working Papers , Paper 1994-024

Working Paper
The value of inside and outside money

We study dynamic economies in which agents may have incentives to hold both privately-issued (a.k.a. inside) and publicly-issued (a.k.a. outside) circulating liabilities as part of an equilibrium. Our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange. We isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first-best allocation of resources. We also study the extent to which the use of private circulating liabilities alone, or the use of public circulating ...
Working Papers , Paper 2000-027

Working Paper
Understanding the distributional impact of long-run inflation

The impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices. In stationary equilibrium, inflation nonlinearly alters the endogenous distributions of income, wealth, and consumption. Small departures from zero inflation have the strongest impact. Three features determine how inflation impacts distributions and welfare: financial structure, shock persistence, and labor supply elasticity. When agents can self-insure only with money, inflation reduces wealth inequality but may raise consumption ...
Working Papers , Paper 2012-058

Working Paper
Analysis of numerical errors

This paper provides a general framework for the quantitative analysis of stochastic dynamic models. We review convergence properties of some numerical algorithms and available methods to bound approximation errors. We then address convergence and accuracy properties of the simulated moments. Our purpose is to provide an asymptotic theory for the computation, simulation-based estimation, and testing of dynamic economies. The theoretical analysis is complemented with several illustrative examples. We study both optimal and non-optimal economies. Optimal economies generate smooth laws of motion ...
Working Papers , Paper 2012-062

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