deviations from rules based policy and their effects abstract rules based monetary policy evaluation has long been central to macroeconomics using the original taylor rule a modified taylor rule with a higher output gap coefficient and an estimated taylor rule we define rules based and discretionary eras by smaller and larger policy rule deviations the absolute value of the difference between the actual federal funds rate and the federal funds rate prescribed by the three rules we use tests for multiple structural changes to identify the eras so that knowledge of subsequent economic outcomes cannot influence the choice of the dates with the original taylor rule monetary policy in the u s is characterized by a rules based era until 1974 a discretionary era from 1974 to 1985 a rules based era from 1985 to 2000 and a discretionary era from 2001 to 2013 with the modified taylor rule the rules based era extends further into the 1970s and there is an additional rules based period starting in 2006 we calculate various loss functions and find that economic performance is uniformly better during rules based eras than during discretionary eras and that the original taylor rule provides the largest loss during discretionary periods relative to loss during rules based periods

unanticipated inflation and economic activity abstract this paper presents a new empirical test of the expectations adjusted supply fucntion obtaining the market s inflationary expectations from the market interest rate the results support the existence of a positive relationship between unanticipated inflation and the level of economic activity while anticipated inflation seems to have no effect

a shadow rate new keynesian model abstract we propose a tractable and coherent framework that captures both conventional and unconventional monetary policies with the shadow fed funds rate empirically we document the shadow rate s resemblance to an overall financial conditions index various private interest rates the fed s balance sheet and the taylor rule theoretically we demonstrate the impact of unconventional policies such as qe and lending facilities on the economy is identical to that of a negative shadow rate making the latter a useful summary statistic for these policies our model generates the data consistent result a negative supply shock is always contractionary it also salvages the new keynesian model from the zero lower bound induced structural break

efficient market testing of the expectations adjusted supply function hypothesis for italy 1985 efficient market testing of the expectations adjusted supply function hypothesis for italy applied economics vol 17 no 6 pp 1065 1070

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

panacea pandora s box or placebo feedback in bank mortgage backed security holdings and fair value accounting we examine the relation between bank holdings of mortgage backed securities mbs and mbs prices theory suggests feedback between mbs holdings and underlying asset markets can be aggravated by mark to market accounting we measure feedback by the relation between asset returns and the changes in bank mbs holdings consistent with the existence of feedback effects related to mark to market we find that for banks with high mbs more nonperforming loans and lower total capital ratio changes in bank mbs positions are positively associated with changes in mbs prices and that this relation is reduced after the april 2009 mark to market rule clarification to assess the effect of feedback on shareholder value we test whether the stock price response of banks to the announcement of the mark to market accounting rule clarification is associated with the intensity of feedback behavior we find that the stock market reaction to the rule change is more positive for banks with more mbs higher nonperforming loans and higher pre rule change feedback we also find positive bond price reactions to the rule change overall our results suggest feedback related to mark to market accounting had a measurable effect on shareholder value 2011 published by elsevier b v

hedging speculation and shareholder value abstract we document that gold mining firms have consistently realized economically significant cash flow gains from their derivatives transactions we conclude that these cash flows have increased shareholder value since there is no evidence of an offsetting adjustment in firms systematic risk this finding contradicts a central assumption in the risk management literature that derivatives transactions have zero net present value and highlights an important motive for firms to use derivatives that the literature has hitherto ignored although we find considerable evidence of selective hedging in our sample the cash flow gains from selective hedging appear to be small at best

what makes a good economy evidence from public opinion surveys analysis of 35 years of previously unstudied survey data shows how the american public evaluates the health of the macroeconomy survey responses are multidimensional distinct from indexes of consumer sentiment and based mostly on genuine perceptions of economic conditions not media reports of economic statistics as such they contain unique information about current and future values of these statistics particularly consumption growth a longstanding focus of the literature both intangibles and macroeconomic fundamentals explain substantial variation in the survey data the public equates 2 to 5 percentage points of inflation with 1 percentage point of unemployment jel e32 e27 eo1 i introduction traditional business cycle measurement and theory tends to downplay the role of public perceptions the health of the macroeconomy is evaluated with a lag through formal measurement of fundamentals like gross domestic product gdp growth rather than by the opinion of the public the objective functions employed by models of macro policy derived from theory or prescribed ad hoc are similarly unshaped by public opinion on the attractiveness of various states of the economy for a profession that is enamored of consumer sovereignty and cognizant of the value of idiosyncratic decentralized information this is a little surprising it probably reflects in part a lack of available data in the united states prior research on the macroeconomic perceptions of the public has almost exclusively employed the widely available michigan index of consumer sentiment or its counterpart from the conference board the consumer confidence index to predict future consumption but these measures are not intended to be and have not been interpreted as general assessments of the national macroeconomy they combine responses to a variety of questions about personal finances and the macroeconomy about employment consumption and profitability about current conditions and the change in those conditions these questions are sufficiently disparate that it is unclear what exactly either index measures or how it should be interpreted see merkle langer and sussman 2004 this ambiguity has probably contributed to a decades long debate over the usefulness of such indices which has been compounded by divergent findings on their ability to forecast future consumption see golinelli and parigi 2004 manski 2004 to surmount these data limitations 35 years of responses were assembled from three reputable national u s polls that ask about the current state of the national economy and or whether economic conditions are getting better or worse all are conceptually and we show statistically distinct from indexes of consumer sentiment and none has been previously studied as shown in this article these poll data enrich our understanding of the business cycle in three ways they contain information about fundamental macroeconomic variables which are reported with a lag and often subsequently revised they establish the role of various macroeconomic fundamentals and of intangibles in determining the public s satisfaction with the economy which informs policy and suggests simple summary measures of economic conditions and they reveal the multifaceted nature of consumers macroeconomic perceptions which span four dimensions across a total of nine survey questions section ii introduces these surveys and shows how they relate to each other and to the michigan and conference board indices in section iii we examine how macroeconomic conditions influence the assessments reported therein their predictive power is examined in section iv section v concludes ii polling on the state of the economy for decades american news organizations have asked respondents to assess the national macroeconomy table 1 lists the questions time spans sample periods and response options for each

monetary policy rules work and discretion doesn t a tale of two eras this lecture examines monetary policy during the past three decades it documents two contrasting eras first a rules based era from 1985 to 2003 and second an ad hoc era from 2003 to the present during the rules based era monetary policy in broad terms followed a predictable systemic approach and economic performance was generally good during the ad hoc era monetary policy is best described as a discretion of authorities approach and economic performance was decidedly poor by considering alternative explanations of this policy performance correlation and examining corroborating evidence the paper concludes that rules based policies have clear advantages over discretion this abstract was borrowed from another version of this item

effect of derivative accounting rules on corporate risk management behavior abstract i examine the effect of the accounting standard for derivative instruments sfas no 133 on corporate risk management behavior i classify a derivative user as an effective hedger eh firm if its risk exposures decreased after the initiation of the derivatives program and as an ineffective hedger speculator is firm otherwise i find that volatility of cash flows and risk exposures related to interest rate foreign exchange rate and commodity price decrease significantly for is firms but not for eh firms suggesting that is firms engaged in more prudent risk management activities after the adoption of sfas no 133

global liquidity transmission to emerging market economies and their policy responses abstract this paper analyzes the transmission of global liquidity gl from advanced economies aes to emerging market economies emes we distill gl momenta from the macro financial data of aes through a factor model and identify them with sign restrictions as policy driven market driven and risk averseness factors using a panel factor augmented var analysis we then investigate eme responses to shocks to gl momenta a positive shock to policy driven liquidity boosts growth in emes elevating stock prices and currency values while a shock to risk averseness has a largely opposite effect a market driven gl expansion boosts stock markets and lowers funding costs increasing competitiveness and current account balance inflation targeting emes are found to fare better than emes under alternative regimes in terms of macro financial volatility

the reliability of investment property fair value estimates abstract we investigate the reliability of mandatory annual fair value estimates for uk investment property we find that appraisal estimates understate actual selling prices and are considerably less biased and more accurate measures of selling price than respective historical costs investigations of managerial discretion over fair value reporting reveal that managers select among permissible accounting methods to report higher earnings time asset sales to smooth reported earnings changes smooth reported net asset changes and boost fair values prior to raising new debt finally we find that the reliability of appraisal estimates increases when monitored by external appraisers and big 6 auditors

on central bank independence and the stability of policy targets it is argued that impediments to the establishment of an independent central bank arise in the presence of unstable policy targets changing policy targets may occur with an officemotivated policymaker this differs from politico economic models where targets change depending on the partisanship of the politicians in office in the model the principal faces a tradeoff between the credibility benefits of an independent central bank and the flexibility to pursue shifts in his policy targets allowed by a regime of policy discretion an empirical section addresses the issue of the correlation between central bank independence and the stability of policy targets

some evidence on policy makers motives macroeconomic preferences and output inflation trade offs this paper presents the results of an empirical study of the relationship between macroeconomic performance and policy makers preferences for real output growth and inflation based on quarterly data from 16 countries the empirical results indicate that a lower priority to inflation and a higher real output growth target lead to higher inflation and a less favourable real output inflation trade off without affecting real output growth

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

fair value accounting and managers hedging decisions real effect of fair value accounting we conduct two experiments with experienced accountants to investigate how fair value accounting affects managers real economic decisions in experiment 1 we find that participants are more likely to make suboptimal decisions e g forgo economically sound hedging opportunities when both the economic and fair value accounting impact information is presented than when only the economic impact information is presented or when both the economic and historical cost accounting impact information is presented this adverse effect of fair value accounting is more likely when the price volatility of the hedged asset is higher which is a situation where paradoxically hedging is more beneficial we find that the effect is mediated by participants relative considerations of economic factors versus accounting factors e g earnings volatility experiment 2 shows that enhancing salience of economic information or separately presenting net income not from fair value remeasurements reduces the adverse effect of fair value accounting our findings are informative to standard setters in their debate on the efficacy of fair value accounting

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

the rewards to meeting or beating earnings expectations abstract this paper finds that firms that meet or beat current analysts earnings expectations mbe enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations further such a premium to mbe although somewhat smaller exists in the cases where mbe is likely to have been achieved through earnings or expectations management the findings also indicate that the premium to mbe is a leading indicator of future performance this premium and its predictive ability are only marginally affected by whether the mbe is genuine or the result of earnings or expectations management

taking a view corporate speculation governance and compensation using responses to a well known confidential survey we study corporations use of derivatives to take a view on interest rate and currency movements characteristics of speculators suggest that perceived information and cost advantages lead them to take positions actively that is they do not speculate to increase risk by betting the ranch speculating firms encourage managers to speculate through incentive aligning compensation arrangements and bonding contracts and they use derivatives specific internal controls to manage potential abuse finally we examine whether investors reading public corporate disclosures are able to identify firms that indicate speculating in the confidential survey they are not derivative instruments can be used to hedge market risk exposures or to spec ulate on movements in the value of the underlying asset to hedge generally implies that the derivative position is taken with the intention of reducing risk to speculate generally implies that the derivative position is undertaken with the primary intention of making a profit or increasing risk speculation has a pejorative connotation in the financial press yet it is not clear that this repu tation is deserved in this paper we explore whether speculation is an activity that is optimal ex ante but for which we should expect to observe some large negative outcomes ex post or whether it is an activity that will decrease ex pected shareholder value to the benefit of agents of the firm that is whether it is evidence of an agency problem and governance failure the extant theoretical and empirical literature presents an abundance of ev idence about why firms should and do use derivatives to hedge 1 we know

taylor rule deviations and out of sample exchange rate predictability abstract the taylor rule has become the dominant model for academic evaluation of out of sample exchange rate predictability two versions of the taylor rule model are the taylor rule fundamentals model where the variables that enter the taylor rule are used to forecast exchange rate changes and the taylor rule differentials model where a taylor rule with postulated coefficients is used in the forecasting regression we use data from 1973 to 2014 to evaluate short run out of sample predictability for eight exchange rates vis a vis the u s dollar and find strong evidence in favor of the taylor rule fundamentals model alternative against the random walk null the evidence of predictability is weaker with the taylor rule differentials model and still weaker with the traditional interest rate differential purchasing power parity and monetary models the evidence of predictability for the fundamentals model is not related to deviations from the original taylor rule for the u s but is related to deviations from a modified taylor rule for the u s with a higher coefficient on the output gap the evidence of predictability is also unrelated to deviations from taylor rules for the foreign countries and adherence to the taylor principle for the u s

information costs learning process and the effectiveness of monetary policy the lucas cukierman model is modified to allow for agents imperfect knowledge of the key money supply parameter and to make the extent of information acquisition by agents endogenous a bayesian framework is used and the effectiveness of monetary policy during the learning process is also examined

smoothing income in anticipation of future earnings abstract recent theory argues that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance we find support for this theory our evidence suggests that when current earnings are poor and expected future earnings are good managers borrow earnings from the future for use in the current period conversely when current earnings are good and expected future earnings are poor managers save current earnings for possible use in the future however sensitivity analysis indicates that we cannot rule out selection bias as a potential alternative explanation for our findings

demand driven innovation and spatial competition over time the demand pull hypothesis regarding the process underlying innovation emphasizes a top down approach the initiation of an innovation is seen as coming from the firm s marketing or production people and the response as coming from the research staff the problem may be posed by members of the firm that deal directly with its customers or are involved with the manufacture of its products and a solution is provided by the research staff the alternative technology push hypothesis emphasizes a bottom up approach and has the research staff playing the active role of determining the nature of the innovation with the marketing and production staff playing a passive role it seems that neither hypothesis alone can account for the direction of innovative activity it is the interaction of technological opportunity and economic opportunity that is of ultimate importance moreover technological opportunity is judged to be responsible for the long run evolution of products while economic opportunity appears to account for more of the short run developments kamien and schwartz 1982