the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

dynamics of dyadic competitive interaction in this study of firms entries into and exits from each other s markets we link research on multipoint competition to the emerging action oriented dyadic approach to interfirm rivalry by specifying market interdependencies between pairs of firms that condition their potential for rivalry over time our dynamic analysis of competitive interactions between pairs of commuter airlines in california reveals the idiosyncratic and asymmetric market microstructures that characterize dyadic competitive relationships and helps explain why firms grapple vigorously with some of their competitors while being passive toward others we show that there is an inverted u shaped relationship between firms rates of entry into and exit from each other s markets and the level of multimarket contact in competitor dyads we also show how this basic curvilinear effect varies from dyad to dyad as a function of relative levels of multimarket contact with competitors in other dyads and the relative sizes of competitors in a focal dyad copyright 1999 john wiley sons ltd

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

federal reserve interest rate targeting rational expectations and the term structure abstract 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 structure

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 determinants of future u s monetary policy high frequency evidence this paper examines the determinants of future u s monetary policy by studying the relationship between a predictor of the future direction of monetary policy and a pertinent information set specifically we investigate the impact of the surprise component of an array of macro economic announcements upon federal funds futures rates this investigation is conducted using high frequency intraday data in order to examine the exact timing of rate reactions to announcements in doing this we find that non farm payrolls and civilian unemployment announcements play a dominant role in determining future monetary policy moreover we document evidence that shows that the release of such information is rapidly incorporated into rates particularly when considering federal funds futures contracts traded via an electronic trading platform as opposed to an open auction trading platform

the political economy of american monetary policy preface 1 introduction thomas mayer 2 studying the fed towards a broader public choice perspective thomas willett 3 the federal reserve reaction function a specification search salwa khouri 4 corporate profitability as a determinant of restrictive monetary policy estimates for the post war united states gerald epstein and juliet schor 5 federal reserve behavior since 1980 a financial market perspective william melton and v vance roley 6 the federal reserve and its institutional environment a review michael munger and brian roberts 7 the political economy of monetary policy robert hetzel 8 political monetary cycles nathaniel beck 9 congress and the fed why the dog does not bark in the night nathaniel beck 10 the federal reserve as a political power james pierce 11 monetary policy and political economy the federal reserve and the bank of japan thomas cargill and michael hutchinson 12 a positive analysis of the policymaking process at the federal reserve raymond lombra and nicholas karamouzis 13 a theory of fomc dissent voting with evidence from the time series thomas havrilesky and robert schweitzer 14 explaining fomc members votes john gildea 15 fed behaviour and x efficiency theory toward a general framework harinder singh and roger frantz 16 minimizing regret cognitive dissonance as an explanation of fomc behavior thomas mayer 17 the discount window william poole 18 leaning against the wind the behavior of the money stock in recession and recovery 1953 8 elmus wicker 19 bureaucratic self interest as an obstacle to monetary reform edward kane index

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a discrete state continuous time model of financial transactions prices and times financial transaction prices typically lie on a discrete grid of values and arrive at random times this paper proposes an econometric model with this structure the distribution of each price change is a multinomial conditional on past information and the time interval between the transactions the proposed autoregressive conditional multinomial acm model is not restricted to be markov or symmetric in response to shocks however such restrictions can be imposed the duration between trades is modeled as an autoregressive conditional duration acd model following engle and russell 1998 maximum likelihood estimation and testing procedures are developed the model is estimated with 12 months of tick data on a moderately frequently traded nyse stock airgas the preferred model is estimated with three lags for the acm model and two lags for the acd model both price returns and squared returns influence future durations and present and past durations affect price movements the model exhibits revers

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

selective sampling for binary choice models abstract marketing problems sometimes pertain to the analysis of dichotomous dependent variables such as buy and not buy or respond and not respond one outcome can strongly outnumber the other such as when many households do not respond e g to a direct mailing in such situations an efficient data collection strategy is to sample disproportionately more from the smaller group however subsequent statistical analysis must account for this sampling strategy in this article the authors put forward the econometric method that can correct for the sample selection bias when this method does not lead to a loss in precision the authors illustrate the method for synthetic and real life data and document that reductions of more than 50 in sample sizes can be obtained

ricardian equivalence in the presence of capital market imperfections abstract it is a common claim that ricardian equivalence fails if capital markets are imperfect the validity of this claim is examined for the case of informationally imperfect capital markets we present three alternative models of adverse selection and analyze the effects of debt finance in these models it is shown that a debt financed tax cut can lead to pareto improvement in some cases in the theoretically most preferable model however ricardian equivalence survives in spite of genuine imperfections in the capital market the results point to the importance of specifying the exact nature of imperfection

finite horizons infinite horizons and the real interest rate finite horizons infinite horizons and the real interest rate using an overlapping generations model in which households may have either finite or infinite horizons i derive the implications of each horizon for the steady state real interest rate i then formulate an econometric model of the steady state real interest rate and devise tests that can distinguish between finite and infinite horizons these tests are applied to annual and quarterly u s data which span the period 1875 1988 the results are inconsistent with finite horizons and broadly consistent with infinite horizons i introduction in conventional macroeconomic analysis government budget deficits raise perceived wealth and stimulate aggregate demand because households are modeled as having finite horizons if households are instead modeled as having infinite horizons budget deficits need not stimulate aggregate demand and hence need not affect output employment interest rates and the price level the reason is that households with infinite horizons do not view the government debt as net wealth thus they may treat budget deficits i e future taxes and current taxes as equivalent ricardian equivalence is said to hold if households treat budget deficits as equivalent to current taxes 1 three reasons are typically advanced for assuming households have finite horizons first the individuals who comprise current households have finite lifetimes second some households face binding liquidity constraints either now or in the future 2 third boundedly rational households may choose to behave myopically acting as if their current decisions do not affect allocations occurring beyond some horizon 3 these three reasons however do not necessitate modeling households as having finite horizons first barro 1974 has shown that finite lifetimes need not imply finite horizons second hayashi 1987 and yotsuzuka 1987 have shown that lenders may impose liquidity constraints that vary one for one with the government debt in such an environment the government debt relaxes no liquidity constraints third because bounded rationality assumes fixed costs of decision making it may be able to explain why aggregate demand would respond to small short term budget deficits but cannot explain why aggregate demand would respond to large or long term budget deficits because logically consistent reasons can be adduced for modeling households as having either finite or infinite horizons the issue of which is the better modeling strategy should ultimately be decided by empirical analysis this paper offers such an analysis it investigates the implications of finite and infinite horizons for the steady state behavior of the real interest rate the evidence reported here is inconsistent with finite horizons and broadly consistent with infinite horizons the rest of the paper is organized as follows using barro s 1974 overlapping generations model i derive its implications for the steady state real interest rate in section ii these implications differ according to whether households have inoperative bequest motives and finite horizons or operative bequest motives and infinite horizons in section iii i formulate an econometric model that encompasses the implications of the theoretical model of section ii for both of these cases in sections iv v vi and vii i test these implications using u s data in section viii i investigate whether the real interest rate evidences any short term departures from ricardian equivalence finally in section ix i draw some tentative conclusions ii an overlapping generations model of the steady state in this section i lay out barro s overlapping generations model which is the simplest model in which one can derive the implications of finite and infinite horizons for the steady state real interest rate

forecasting substantial data revisions in the presence of model uncertainty a recent revision to the preliminary measurement of gdp e growth for 2003q2 caused considerable press attention provoked a public enquiry and prompted a number of reforms to uk statistical reporting procedures in this article we compute the probability of substantial revisions that are greater in absolute value than the controversial 2003 revision the predictive densities are derived from bayesian model averaging over a wide set of forecasting models including linear structural break and regime switching models with and without heteroscedasticity ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary uk macroeconomic measurements

nonmonotonic status effects in new product adoption we investigate how the tendency to adopt a new product independently of social influence the recipients susceptibility to such influence and the sources strength of influence vary with social status leveraging insights from social psychology and sociology about middle status anxiety and conformity we propose that for products that potential adopters expect to boost their status both the tendency to adopt independently from others and the susceptibility to contagion is higher for middle status than for low and high status customers applying a nested case control design to the adoption of commercial kits used in genetic engineering we find evidence that status affects i how early or late one adopts regardless of social influence ii how susceptible one is to such influence operating through social ties and iii how influential one s own behavior is in triggering adoption by others the inverse u patterns in i and ii are consistent with middle status anxiety and conformity the findings have implications for how to use status to better understand adoption and contagion mechanisms and for targeting customers when launching new products

measuring monetary policy interdependence abstract this paper measures the degree of monetary policy interdependence between major industrialized countries from a new perspective the analysis uses a special data set on central bank issued policy rate targets for 14 oecd countries methodologically our approach is novel in that we separately examine monetary interdependence due to 1 the coincidence in time of when policy actions are executed from 2 the nature and magnitude of the policy adjustments made the first of these elements requires that the timing of events be modeled with a dynamic discrete duration design the discrete nature of the policy rate adjustment process that characterizes the second element is captured with an ordered response model the results indicate there is significant policy interdependence among these 14 countries during the 1980 1998 sample period this is especially true for a number of european countries which appeared to respond to german policy during our sample period a number of other countries appeared to respond to u s policy though this number is smaller than that suggested in preceding studies moreover the policy harmonization we find appears to work through channels other than formal coordination agreements

central bank communication and the perception of monetary policy by financial market experts this paper investigates how financial experts perceive the monetary policy of the european central bank ecb assuming a taylor rule type reaction function we use qualitative survey expectations about future interest rates inflation and output to discover the sources of individual interest rate forecast errors based on a panel random coefficient model we show that financial experts have systematically misperceived the ecb s interest rate rule while perception of monetary policy regarding inflation has become more accurate since the ecb s clarification of the monetary policy strategy in 2003 misperception regarding the ecb s reaction to output has increased in the financial crisis

why are prices sticky the dynamics of wholesale gasoline prices the menu cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price we find that this prediction is broadly consistent with the behavior of nine philadelphia gasoline wholesalers nevertheless we reject the menu cost model as a literal description of these firms behavior arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

a new marked point process model for the federal funds rate target methodology and forecast evaluation abstract forecasts of key interest rates set by central banks are of paramount concern for investors and policy makers recently it has been shown that forecasts of the federal funds rate target the most anticipated indicator of the federal reserve bank s monetary policy stance can be improved considerably when its evolution is modeled as a marked point process mpp this is due to the fact that target changes occur in discrete time with discrete increments have an autoregressive nature and are usually in the same direction we propose a model which is able to account for these dynamic features of the data in particular we combine hamilton and jorda s 2002 a model for the federal funds rate target journal of political economy 110 5 1135 1167 autoregressive conditional hazard ach and russell and engle s 2005 a discrete state continuous time model of financial transactions prices and times the autoregressive conditional multinomial autoregressive conditional duration model journal of business and economic statistics 23 2 166 180 autoregressive conditional multinomial acm model the paper also puts forth a methodology to evaluate probability function forecasts of mpp models by improving goodness of fit and point forecasts of the target the ach acm qualifies as a sensible modeling framework furthermore our results show that mpp models deliver useful probability function forecasts at short and medium term horizons