estimation of a taiwan monetary reaction function with time varying parameters this paper employs a nonlinear kalman filter to examine the time varying responses of taiwan s monetary policy in the presence of a limited dependent variable the kalman filtered parameters reveal that the responses are not constant but change over time furthermore a counter cyclical reaction function is identified and a stronger than usual discretionary policy during the recessions is found

the democratic political economy of progressive income taxation why do both left and right political parties typically propose progressive income taxation schemes in political competition analysis of this problem has been hindered by the two dimensionality of the issue space to give parties a choice over a domain that contains both progressive and regressive income tax policies requires an issue space that is at least two dimensional nash equilibrium in pure strategies of the standard two party game whose players have complete preferences over a two dimensional policy space generically fails to exist i introduce a new equilibrium concept for political games based on the fact of factional conflict within parties each party is supposed to consist of reformists militants and opportunists each faction has a complete preference order on policy space but together they can only agree on a partial order nash equilibria of the two party game where the policy space consists of all quadratic income tax functions and each party is represented by its partial order exist and it is shown that in such equilibria both parties propose progressive income taxation

duopoly and quality standards abstract in the absence of sunk costs a low quality producer benefits from a mildly restrictive quality standard whereas a high quality producer suffers from it consumers welfare increases if the firm producing the higher quality does not increase its quality significantly in response to the increase in quality by its rival a sufficiently severe standard causes exit from the industry when there are no sunk cost the high quality producer exits first

a new time varying parameter autoregressive model for u s inflation expectations we study the evolution of u s inflation by means of a new noncausal autoregressive model with time varying parameters that outperforms the corresponding causal and constant parameter noncausal models in terms of fit and forecast accuracy our model also beats the unobserved component stochastic volatility ucsv model one of the best performing univariate inflation forecasting models in terms of both point and density forecasts we also show how the new keynesian phillips curve can be estimated based on our noncausal model both expected and lagged inflation turn out important but the former dominates in determining the current inflation

estimating the open market desk s daily reaction function this paper presents the results of an empirical investigation into the proximate determinants of the federal reserve s daily open market operations using information available each morning at the fed conference call the author models the open market desk s choice of both the quantity and the type of operation using a friction model for the former and a multinomial logit framework for the latter different types of operations are shown to send different signals to the market about the underlying thrust of fed policy and open market operations in recent years are shown to have become increasingly keyed to the federal funds rate copyright 1993 by ohio state university press

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

time varying response of monetary policy to macroeconomic conditions we reject the hypothesis that the federal reserve s response to the macroeconomy over the period of 1953 1994 can be accurately represented with a fixed parameter discrete choice model thus we model the fed s time varying response with a nonlinear kalman filter the estimated time paths of the reaction function coefficients suggest that the fed has responded countercyclically to movements in the price level except for the middle 1970s when it accommodated inflation the fed has generally responded countercyclically to unemployment and output during recessions however it has not maintained a countercyclical policy during nonrecessionary times until the 1980s a reaction function empirically relates a monetary policy indicator often the federal funds rate or a monetary aggregate to the macroeconomic objectives of monetary policy usually national output inflation and unemployment assuming that the underlying macroeconomy is stable estimated coefficients from a reaction function reveal information about the monetary authority s response to macroeconomic conditions chappell havrilesky and mcgregor 1993 beyond the assumption described above most reaction function studies further assume that the federal reserve s response function is linear in the sense that it contains fixed coefficients see the survey by barth sickles and weist 1982 and more recently chappell havrilesky and mcgregor 1993 that is most studies implicitly assume that the fed responds to a change in inflation for example with the same vigor regardless of whether the level of inflation is unusually high or low and regardless of the timing of the response with respect to the business cycle elections and so on although it is generally recognized that a fixed coefficient estimate of the fed s reaction function overly homogenizes the fed s actual response to macroeconomic conditions solutions to the problem have been ad hoc studies that seek to expose a political business cycle impose structural break points on the fed s reaction function based on pre and postelections periods and then estimate a fixed coefficient reaction function within each subperiod hakes 1988a chappell havrilesky and mcgregor 1993 gamber and hakes 1997 other studies impose structural break points based on political or policy regimes and then estimate a fixed coefficient

the operations of the bank of england 1890 1908 a dynamic probit approach this paper analyzes the workings of the pre world war i gold standard using weekly data and a dynamic probit econometric technique the authors evidence sheds light on three potentially conflicting motivations underlying bank rate changes profitability convertibility and concern for home trade the conflict among these goals manifests itself in the bank s asymmetric responses to inflows and outflows of gold and in the bank s asymmetric responses to changes in market interest rates the authors results are consistent with the view that central bank cooperation played an important role in the workings of the gold standard copyright 1995 by ohio state university press

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

policy objectives and performance in a mixed market with bargaining abstract we analyse a mixed duopoly in which wages and salaries are determined by nash bargaining and where the public firm s unit costs depend on its objectives because of constant returns to scale welfare maximisation without restriction would eliminate or significantly weaken the private firm therefore we focus on constrained welfare maximisation in which case unit costs are normally higher in the public firm on the other hand the private firm may even earn more than in a monopoly if the public firm maximises profits or if the constraint offers too much protection

modelling inflation volatility this paper discusses estimation of us inflation volatility using time varying parameter models in particular whether it should be modelled as a stationary or random walk stochastic process specifying inflation volatility as an unbounded process as implied by the random walk conflicts with priors beliefs yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility we therefore propose an alternative model with a change point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past 40 years to accommodate the stationarity restriction we develop a new representation that is equivalent to our model but is computationally more efficient all models produce effectively identical estimates of volatility but the change point model provides more information on the level and persistence of volatility and the probabilities of changes for example we find a few well defined switches in the volatility process and interestingly these switches line up well with economic slowdowns or changes of the federal reserve chair moreover a decomposition of inflation shocks into permanent and transitory components shows that a spike in volatility in the late 2000s was entirely on the transitory side and characterized by a rise above its long run mean level during a period of higher persistence

estimation and forecasting in models with multiple breaks this paper develops a new approach to change point modelling that allows the number of change points in the observed sample to be unknown the model we develop assumes that regime durations have a poisson distribution it approximately nests the two most common approaches the time varying parameter tvp model with a change point every period and the change point model with a small number of regimes we focus considerable attention on the construction of reasonable hierarchical priors both for regime durations and for the parameters that characterize each regime a markov chain monte carlo posterior sampler is constructed to estimate a version of our model which allows for change in conditional means and variances we show how real time forecasting can be done in an efficient manner using sequential importance sampling our techniques are found to work well in an empirical exercise involving u s gdp growth and inflation empirical results suggest that the number of change points is larger than previously estimated in these series and the implied model is similar to a tvp with stochastic volatility model

are monetary policy reaction functions asymmetric the role of nonlinearity in the phillips curve abstract this paper investigates the implications of a nonlinear phillips curve for the derivation of optimal monetary policy rules combined with a quadratic loss function the optimal policy is also nonlinear with the policy maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target specifically the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected inflation and the output gap in an otherwise linear taylor rule we find empirical support for this type of asymmetries in the interest rate setting behaviour of four european central banks but none for the us fed

using romer and romer s new measure of monetary policy shocks to identify the ad and as shocks this article re examines the series of exogenous federal funds rate ffr shocks created by romer and romer 2004 for the period 1969 01 1996 12 we hypothesize that if romer and romer have constructed a reasonable set of monetary policy shocks then including them in a small vector autoregression var should help to identify other structural shocks that affected the united states economy during their sample period using a sample period of 1971 01 1996 12 we are easily able to identify both an aggregate demand ad shock and an aggregate supply as shock without imposing any sign or long run restrictions we present historical decompositions that allow us to compare the relative importance of these shocks with that of the exogenous monetary policy shocks in explaining output fluctuations during the 1973 1975 1980 1984 and 1990 1991 business cycle episodes

modelling and forecasting exchange rates with a bayesian time varying coefficient model this paper employs a multivariate bayesian time varying coefficients tvc approach to model and forecast exchange rate data it is shown that if used as a data generating mechanism a tvc model induces nonlinearities in the conditional moments and leptokurtosis in the unconditional distribution of the series it is also shown that leptokurtic behavior disappears under time aggregation as a forecasting device a bayesian tvc model improves over a random walk model the improvements are robust to several changes in the forecasting environment

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

contributory infringement rule and patents abstract the contributory infringement rule assesses liability to a third party that contributes to the infringement of a patent not only are firms that directly infringe liable but those that indirectly contribute are also liable we investigate how this rule affects the creation of a network of members e g an e commerce network we find that the enforcement of indirect liability does not induce more trials in equilibrium firms settle out of court but because of the threat of trial the network size decreases and the social welfare is reduced surprisingly we find that if the compensation paid by the indirect infringers is high the rule does not benefit the patentholder and may not even give enough r d incentives ex ante it is possible to find a direct compensation for the patentholder that is socially preferable

the time varying parameter model for modeling changing conditional variance the case of the lucas hypothesis the main econometric issue in testing the lucas 1973 hypothesis in a time series context is estimation of the forecast error variance conditional on past information the conditional variance may vary through time as monetary policy evolves and agents are obliged to infer its present state under the assumption that a monetary policy regime is continuously changing a time varying parameter model is proposed for the monetary growth function based on kalman filtering estimation of recursive forecast errors and their conditional variances the lucas hypothesis is tested for the u s economy 1964 1 1985 4 using monetary growth as aggregate demand variable the lucas hypothesis is rejected in favor of friedman s 1977 hypothesis the conditional variance of monetary growth affects real output directly not through the coefficients on the forecast error term in the lucas type output equation

the effects of monetary policy a dsge model analysis of taiwan this article attempts to use empirical data to analyse the impact of monetary policy in a dynamic stochastic general equilibrium model according to the monetary policy decisions of the central bank of china taiwan maintaining price financial stability and fostering economic growth are the ultimate goals of monetary policy during the empirical period first this article uses the cointegration tests to determine the operating targets the intermediate targets and the ultimate goals of monetary policy then a forward looking aggregate demand aggregate supply model for a small open economy is specified and policy discretion is included in this model finally the model is estimated by a linear state space model and is used to analyse the short run effects of a systematic monetary change

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

a new model of trend inflation this article introduces a new model of trend inflation in contrast to many earlier approaches which allow for trend inflation to evolve according to a random walk ours is a bounded model which ensures that trend inflation is constrained to lie in an interval the bounds of this interval can either be fixed or estimated from the data our model also allows for a time varying degree of persistence in the transitory component of inflation in an empirical exercise with cpi inflation we find the model to work well yielding more sensible measures of trend inflation and forecasting better than popular alternatives such as the unobserved components stochastic volatility model this article has supplementary materials online

time varying discrete monetary policy reaction functions a novel dynamic ordered probit model with time varying parameters is proposed to estimate a monetary policy reaction function with narrative based monetary indicators the estimation and inference are carried out using the bayesian simulation based approach empirically these are the following findings first there is strong evidence in support that the central bank in taiwan responds counter cyclically to inflation but weaker if any evidence to economic growth secondly the persistence and consistence in policy making of the monetary authority is confirmed by the significance of the positive autoregressive coefficient although not all the estimates of the tvp dop model provide at least partial support of time varying parameters finally the results indicate that studies of the discrete monetary policy reaction functions without explicitly considering the possible dynamics inherent in the time series data and time variations in model parameters may be inappropriate if not incorrect

dynamic effects of monetary policy shocks on macroeconomic volatility we use a simple new keynesian model with firm specific capital non zero steady state inflation long run risks and epstein zin preferences to study the volatility implications of a monetary policy shock an unexpected increase in the policy rate by 150 basis points causes output and inflation volatility to rise around 10 above their steady state standard deviations var based empirical results support the model implications that contractionary shocks increase volatility the volatility effects of the shock are driven by agents concern about the in ability of the monetary authority to reverse deviations from the policy rule and the results are re enforced by the presence of non zero trend inflation

backward looking interest rate rules interest rate smoothing and macroeconomic instability the existing literature on the stabilizing properties of interest rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation such rules have been found to give rise to aggregate fluctuations due to self fulfilling expectations in response to this concern a growing literature has focused on the stabilizing properties of interest rate rules whereby the central bank responds to a measure of past inflation the consensus view that has emerged is that backward looking rules contribute to protecting the economy from embarking on expectations driven fluctuations a common characteristic of the existing studies that arrive at this conclusion is their focus on local analysis the contribution of this paper is to conduct a more global analysis we find that backward looking interest rate feedback rules do not guarantee uniqueness of equilibrium we present examples in which for plausible parameterizations attracting equilibrium cycles exist the paper also contributes to the quest for policy rules that guarantee macroeconomic stability globally our analysis indicates that policy rules whereby the interest rate is set as a function of the past interest rate and current inflation are likely to ensure global stability provided that the coecient on lagged interest rates is greater than unity

the semiparametric asymmetric stochastic volatility model with time varying parameters the case of us inflation we propose a semiparametric extension of the time varying parameter regression model with asymmetric stochastic volatility for parameter estimation we use bayesian methods we illustrate our methods with an application to us inflation

the effects of increased copyright protection an analytic approach previous authors who have considered partially nonexcludable goods have claimed that an increase in copyright protection will have the following two effects on social welfare first it will decrease the social welfare loss due to underproduction second it will increase the social welfare loss due to underutilization in this paper we investigate these claims in a formal setting by analyzing a model in which consumers vary only in terms of their costs of obtaining a reproduction our analysis provides partial support to the first claim of these previous authors while giving little or no support to the second claim

how the ecb and the us fed set interest rates monetary policies of the european central bank ecb and us fed can be characterized by taylor rules that is both central banks seem to be setting rates by taking into account the output gap and inflation we also set up and tested taylor rules which incorporate money growth and the euro dollar exchange rate thereby improving the fit between actual and taylor rule based rates in general taylor rules appear to be a much better way of describing fed policy than ecb policy simulations suggest that the ecb s short term interest rates have been at a much lower level in the last 2 years compared with what a taylor rule would suggest

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

the stochastic volatility in mean model empirical evidence from international stock markets in this paper we present an exact maximum likelihood treatment for the estimation of a stochastic volatility in mean svm model based on monte carlo simulation methods the svm model incorporates the unobserved volatility as an explanatory variable in the mean equation the same extension is developed elsewhere for autoregressive conditional heteroscedastic arch models known as the arch in mean arch m model the estimation of arch models is relatively easy compared with that of the stochastic volatility sv model however efficient monte carlo simulation methods for sv models have been developed to overcome some of these problems the details of modifications required for estimating the volatility in mean effect are presented in this paper together with a monte carlo study to investigate the finite sample properties of the svm estimators taking these developments of estimation methods into account we regard sv and svm models as practical alternatives to their arch counterparts and therefore it is of interest to study and compare the two classes of volatility models we present an empirical study of the intertemporal relationship between stock index returns and their volatility for the united kingdom the united states and japan this phenomenon has been discussed in the financial economic literature but has proved hard to find empirically we provide evidence of a negative but weak relationship between returns and contemporaneous volatility which is indirect evidence of a positive relation between the expected components of the return and the volatility process copyright 2002 john wiley sons ltd

measuring uncertainty and its impact on the economy we propose a new framework for measuring uncertainty and its effects on the economy based on a large var model with errors whose stochastic volatility is driven by two common unobservable factors representing aggregate macroeconomic and financial uncertainty the uncertainty measures can also influence the levels of the variables so that contrary to most existing measures ours reflect changes in both the conditional mean and volatility of the variables and their impact on the economy can be assessed within the same framework moreover identification of the uncertainty shocks is simplified with respect to standard var based analysis in line with the favar approach and with heteroskedasticity based identification finally the model which is also applicable in other contexts is estimated with a new bayesian algorithm which is computationally efficient and allows for jointly modeling many variables while previous var models with stochastic volatility could only handle a handful of variables empirically we apply the method to estimate uncertainty and its effects using us data finding that there is indeed substantial commonality in uncertainty sizable effects of uncertainty on key macroeconomic and financial variables with responses in line with economic theory

a welfare comparison of private and public monopoly abstract the cost function of a monopoly is c q k q where is unknown to the regulator we evaluate various ownership and regulation regimes in terms of social welfare determined by both the amount of total surplus and its distribution maximal welfare is achieved by the regulated public firm when its bias is pro consumer and also when it is pro worker and is low enough we compare an unregulated public firm with a private one regulated a la loeb magat baron myerson and characterize the frontier in parameter space where one or the other dominates

leverage effects and stochastic volatility in spot oil returns a bayesian approach with var and cvar applications abstract crude oil markets have been quite volatile and risky in the past few decades due to the large fluctuations of oil prices we contribute to the current debate by testing for the existence of the leverage effect when considering daily spot returns in the wti and brent crude oil markets and by studying the direct impact of the leverage effect on measures of risk such as var and cvar more specifically we model spot crude oil returns using stochastic volatility sv models with various distributions of the errors we find that the introduction of the leverage effect in the traditional sv model with normally distributed errors is capable of adequately estimating risk for speculative oil suppliers in both the wti and brent markets our results also show that financial regulators model choice both on the supply and on the demand side would not be affected by the introduction of leverage focusing instead on firm s internal risk management our results show that the introduction of leverage would be useful for firms who are on the demand side for oil who use var for risk management and who are particularly worried about the magnitude of the losses exceeding var while wanting to minimize the opportunity cost of capital using the same logic firms who are on the supply side would be better off not considering the leverage effect

indirect liability for copyright infringement napster and beyond hen it comes to venues for copyright infringement there was a timewhen nothing could compete with the ea market traditionally eamarkets are places to buy and sell secondhand goods and antiques butin the 1970s and 1980s ea markets became in addition places to buy and sellunauthorized recordings of copyrighted music it was big business as late as 1991 police raided a california ea market and walked away with over 38 000 illegal taperecordings

measuring inflation expectations uncertainty using high frequency data inflation expectations play a key role in determining future economic outcomes the associated uncertainty provides a direct gauge of how well anchored the inflation expectations are we construct a model based measure of inflation expectations uncertainty by augmenting a standard unobserved components model of inflation with information from noisy and possibly biased measures of inflation expectations obtained from financial markets this new model based measure of inflation expectations uncertainty is more accurately estimated and can provide valuable information for policymakers using u s data we find significant changes in inflation expectations uncertainty during the great recession

political manipulation of a public firm s objective function abstract in the context of a government owned public firm that competes with a private firm this paper demonstrates how the government can maximize its true objective by assigning the public firm a different objective function interestingly this assigned objective function need bear no resemblance to the actual objective being sought enabling the government to disguise a politically unpopular agenda and or outside influence

foreign direct investment and endogenous growth in vietnam foregin direct investment s fdi s contribution to growth has been a controversial topic in economic literature and appears to be country specific in this article we use time varying coefficients in an augmented production function and let fdi indirectly affect gross domestic product growth through labour productivity this approach creates built in heteroskedasticity so the feasible generalized least square estimation is employed the results show that fdi has significant and positive effect on labour productivity and economic growth in vietnam but the effect is not equally distributed among economic sectors

the impact of the volatility of monetary policy shocks this paper studies the impact of the volatility of monetary policy using a structural vector auroregression svar model enriched along two dimensions first it allows for time varying variance of monetary policy shocks via a stochastic volatility specification second it allows a dynamic interaction between the level of the endogenous variables in the var and the time varying volatility the analysis establishes that the nominal interest rate output growth and inflation fall in reaction to an increase in the volatility of monetary policy the analysis also develops a dynamic stochastic general equilibrium model enriched with stochastic volatility to monetary policy that generates similar responses and provides a theoretical underpinning of these findings

macroeconomic forecasting performance under alternative specifications of time varying volatility summary this paper compares alternative models of time varying volatility on the basis of the accuracy of real time point and density forecasts of key macroeconomic time series for the usa we consider bayesian autoregressive and vector autoregressive models that incorporate some form of time varying volatility precisely random walk stochastic volatility stochastic volatility following a stationary ar process stochastic volatility coupled with fat tails garch and mixture of innovation models the results show that the ar and var specifications with conventional stochastic volatility dominate other volatility specifications in terms of point forecasting to some degree and density forecasting to a greater degree copyright 2014 john wiley sons ltd

price equilibrium and willingness to pay in a vertically differentiated mixed duopoly in the framework of a vertically differentiated mixed duopoly with uncovered market and zero costs we study the existence of a price equilibrium when a welfare maximizing public firm producing low quality goods competes against a profit maximizing private firm producing high quality goods we show that a price equilibrium exists if the quality spectrum is wide enough vis a vis a measure of the convexity of the distribution of the consumers willingness to pay and that such equilibrium is unique if this sufficient condition is tightened logconcavity of the income distribution is inconsistent with the existence of equilibrium

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

discrete response state space models with conditional heteroscedasticity an application to forecasting the federal funds rate target we propose a state space mixed model with stochastic volatility for ordinal response time series data for parameter estimation we design an efficient markov chain monte carlo algorithm we illustrate our method with an empirical study on the federal funds rate target the proposed model provides better forecasts than alternative specifications

a model for the federal funds rate target this paper is a statistical analysis of the manner in which the federal reserve determines the level of the federal funds rate target one of the most publicized and anticipated economic indicators in the financial world the paper introduces new statistical tools for forecasting a discrete valued time series such as the target and suggests that these methods in conjunction with a focus on the institutional details of how the target is determined can significantly improve on standard vector autoregression forecasts of the effective federal funds rate we further show that the news that the fed has changed the target has statistical content substantially different from the news that the fed failed to make an anticipated target change causing us to challenge some of the conclusions drawn from standard linear var impulse response functions

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

partial privatization in mixed duopoly abstract we investigate a quantity setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors the private firm maximizes profits while the privatized firm takes both profits and social welfare into consideration we consider how many shares the government should hold in the privatized firm we find that neither full privatization the government does not hold any shares nor full nationalization the government holds all of the shares is optimal under moderate conditions

inflation uncertainty and labour market conditions in the us recent inflation dynamics in the united states us questioned the role of driving forces of inflation in the long run although the us recorded one of the longest economic recovery periods and the

fighting city hall entry deterrence and technology upgrades in cable tv markets this article investigates how private firms respond to potential entry from public firms this paper uses a data set of over 3 000 u s cable tv systems to present evidence consistent with entry deterrence incumbent cable tv firms upgrade faster when located in markets with a potential municipal entrant however the same systems are then slower to offer new products enabled by the upgrade suggesting upgrades in these markets occur for strategic reasons incumbent cable systems also upgrade faster in response to municipal entry threats than to private entry threats understanding how private firms respond to potential entry from public firms is especially important in light of recent u s government entry into several industries this paper was accepted by bruno cassiman business strategy

bank rate policy under the interwar gold standard a dynamic probit model the classical gold standard occupies an almost mystical position in the literature of international finance in popular accounts the gold standard is portrayed as a remarkably durable and efficient mechanism for achieving price and exchange rate stability and for relieving balance of payments pressures the system s resilience is attributed to the willingness of nationa monetary authorities to refrain from impeding the international adjustment process when central banks intervened in financial markets it is said they did so mechanically obeying rules of the game which dictated that they reinforce the impact on domestic money and credit of changing balance of payments conditions succeeding generations of economists and historians have sought to qualify this popular view the recent contributions of bordo i98i and cooper i982 make a critical assessment of extravagant claims concerning price and exchange rate stability under the classical gold standard other authors have extended the research of bloomfield i 959 ford i962 and triffin i964 who emphasised the special conditions that permitted the classical gold standard s smooth operation and cast doubt on the tendency of national monetary authorities to adhere faithfully to rules of the game all too often scant mention is made of the interwar gold standard for it is not evident how interwar experience fits into either view certain facts are clear it is clear that the interwar standard was far from durable britain s resumption of gold payments in i925 usually is taken to mark the gold standard s resurrection just as her devaluation a mere 6 years later is taken as its demise in the interim many of the major participants suffered serious balance of payments pressures that threatened to render their exchange rates indefensible the system was anything but conducive to stability it precluded neither price nor income fluctuations as the great depression dramatically illustrated numerous explanations have been advanced for the interwar gold standard s

the real time predictive content of money for output abstract data on monetary aggregates are subject to periodic redefinitions presumably in part to improve their link to measures of output money data are also revised on a regular basis taking these data imperfections into account we reassess the evidence on the marginal predictive content of m1 and m2 for real and nominal output in particular first by using the latest version of the data that is available and then using sequences of historical time series that would have been available to forecasters in real time we are able to provide a comprehensive assessment of whether money is useful for predicting output we conclude that the generally significant marginal predictive content of m1 or m2 for output that is found using a recently revised data set is not duplicated in a real time setting although m2 is shown to remain useful when 1 year ahead forecasts are constructed using fitted vector autoregressive models

mixed oligopoly equilibria when firms objectives are endogenous abstract we study a vertically differentiated market where two firms simultaneously choose the quality and price of the good they sell and where consumers may also care for the average quality of the goods supplied firms are composed of two factions whose objectives differ one is maximizing profit while the other maximizes revenues the equilibrium concept we model called firm unanimity nash equilibrium fune corresponds to the nash equilibrium between firms when there is efficient bargaining between the two factions inside both firms we first show that such equilibria are inefficient with both firms underproviding quality we then assume that the government takes a participation in one firm which introduces a third faction bent on welfare maximization in that firm we study the characteristics of equilibria as a function of the bargaining weight of the welfare maximizing faction we show that equilibrium welfare increases with this bargaining weight especially if consumers care a lot for the average quality of the goods provided

capacity investment timing by start ups and established firms in new markets we analyze the competitive capacity investment timing decisions of both established firms and start ups entering new markets which have a high degree of demand uncertainty firms may invest in capacity early when uncertainty is high or late when uncertainty has been resolved possibly at different costs established firms choose an investment timing and capacity level to maximize expected profits whereas start ups make those choices to maximize the probability of survival when a start up competes against an established firm we find that when demand uncertainty is high and costs do not decline too severely over time the start up takes a leadership role and invests first in capacity whereas the established firm follows by contrast when two established firms compete in an otherwise identical game both firms invest late we conclude that the threat of firm failure significantly impacts the dynamics of competition involving start ups this paper was accepted by yossi aviv operations management

hierarchical markov normal mixture models with applications to financial asset returns motivated by the common problem of constructing predictive distributions for daily asset returns over horizons of one to several trading days this article introduces a new model for time series this model is a generalization of the markov normal mixture model in which the mixture components are themselves normal mixtures and it is a specific case of an artificial neural network model with two hidden layers the article uses the model to construct predictive distributions of daily s p 500 returns 1971 2005 and one year maturity bond returns 1987 2007 for these time series the model compares favorably with arch and stochastic volatility models the article concludes by using the model to form predictive distributions of one to ten day returns during volatile episodes for the s p 500 and bond return series copyright 2010 john wiley sons ltd

the federal reserve s operating procedure nonborrowed reserves borrowed reserves and the liquidity effect abstract recently a number of researchers christiano and eichenbaum 1992 christiano et al 1996a b 1997 evans and marshall 1998 strongin 1995 pagan and robertson 1995 brunner 1994 claim to have found evidence of a statistically significant liquidity effect in a recursive structural var using nonborrowed reserves nbr it is claimed that innovations to nbr reflect the exogenous policy actions of the fed this paper argues that the opposite is true specifically i show that the fed has an incentive to offset bank initiated discount window borrowing when it implements the federal open market committee s policy directive and that it has done so since the late 1950s this practice has created a negative contemporaneous covariance between nbr and the funds rate that has been incorrectly attributed to the liquidity effect by showing that these models capture the endogenous response of the fed to bank borrowing on nbr rather than the effect of exogenous policy actions on the funds rate this paper also resolves the puzzle of the vanishing liquidity effect noted by pagan and robertson 1995 and christiano 1995

inflation differentials in the euro area did the ecb care compared to inflation differentials among regions in the united states european monetary union emu inflation differentials are larger and more persistent based on augmented monetary policy reactions functions this article addresses the question whether the presence of pronounced inflation differentials in combination with low average inflation rates has influenced monetary policy decisions of the ecb the article finds statistical evidence that the ecb took inflation differentials into account which may reflect the fear of deflation in low inflation countries like germany

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

coherence causality and effectiveness of the eu environmental policy system results of complementary statistical and econometric analyses this paper presents the first empirical test of coherence i e consistency of policies within a framework causality i e logical priority of objectives over policies and effectiveness i e ability of policies to tackle challenges as defined by objectives of the overall eu environmental policy system to do so i applied complementary statistical cross sectional and time series and econometric dynamic tri probit analyses to an original panel dataset based on addressed issues i e pollution vs resource trans boundary vs domestic flow vs stock rather than on implemented policies i e eu legislation aiming at optimal pollution production optimal resource use and market competition it would be impossible to perform similar analyses by referring to realized policies rather than tackled issues due to the unbalanced sample characterizing the former with respect to the latter as well as due to overlapping objectives interrelated policies and non univocal relationships between objectives and policies in contrast with previous studies of single eu environmental policies characteristics of the eu environmental policy or eu environmental objectives i found that the overall eu environmental policy system is internally coherent dynamically causal and ex ante effective moreover the evidence suggests that many issues are correlated trans boundary issues became more relevant in 2012 pollution production was more significant than resource use and flow issues were more important than stock issues from 1995 to 2010 finally i show that few objectives overlapped a safe environment objective 1987 1997 was preferred to a greenhouse gas ghg reduction objective 2003 2012 but pursued with a 2 year lag although the latter has recently become preferred to the former in addition a ghg reduction objective was preferred to a sustainable development objective 1998 2002

the stochastic volatility in mean model with time varying parameters an application to inflation modeling this article generalizes the popular stochastic volatility in mean model to allow for time varying parameters in the conditional mean the estimation of this extension is nontrival since the volatility appears in both the conditional mean and the conditional variance and its coefficient in the former is time varying we develop an efficient markov chain monte carlo algorithm based on band and sparse matrix algorithms instead of the kalman filter to estimate this more general variant the methodology is illustrated with an application that involves u s u k and germany inflation the estimation results show substantial time variation in the coefficient associated with the volatility highlighting the empirical relevance of the proposed extension moreover in a pseudo out of sample forecasting exercise the proposed variant also forecasts better than various standard benchmarks

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

estimating the discount rate policy reaction function of the monetary authority this paper estimates a policy rule that explains the sign and the magnitude of the federal reserve s fed s discount rate changes it sets out a two sided type ii tobit model and develops a procedure for its estimation considering the discrete and censored nature of the changes the results suggest that the fed has conducted discount rate policy counter cyclically to influence output and to curb inflation and that the fed s response to policy indicators varies over monetary regimes furthermore consistency is found between the model prediction of the discount rate change and a classification based on whether the change is technical or non technical copyright 1999 john wiley sons ltd

semiparametric bayesian inference for time varying parameter regression models with stochastic volatility we develop a bayesian semiparametric method to estimate a time varying parameter regression model with stochastic volatility where both the error distributions of the observations and parameter driven dynamics are unspecified we illustrate our methodology with an application to inflation