Economic determinants of the correlation structure across international equity markets

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Federal Reserve Bank of San Francisco. Menu Menu Home Research - Our Economists Publications Indicators and Data Center for Pacific Basin Studies Past Conferences About Us. Economic Research Publications Working Papers The latest in economic research We show that a calibrated three-sector model with a suitably chosen distribution of price stickiness can closely approximate the dynamic properties of New Keynesian models with a much larger number of sectors.

The parameters of the approximate three-sector distribution are such that both the approximate and the original distributions share the same i average frequency of price changes, ii cross-sectional average of durations of price spells, iii cross-sectional standard deviation of durations of price spells, iv the cross-sectional skewness of durations of price spells, and v cross-sectional kurtosis of durations of price spells.

These results provide the tools for a growing literature that tries to estimate empirically-relevant multisector models with much reduced computational costs. The TIPS Liquidity Premium Martin M. We introduce a new arbitrage-free term structure model of nominal and real yields that accounts for liquidity risk in Treasury inflation-protected securities TIPS. We find a sizable and countercyclical TIPS liquidity premium, which greatly helps our model in matching TIPS prices.

Is There an On-the-Run Premium in TIPS? This difference is known as the on-the-run premium. In this paper, yield spreads between pairs of Treasury Inflation-Protected Securities TIPS with identical maturities but of separate vintages are analyzed. Adjusting for differences in coupon rates and values of embedded deflation options, the results show a small, positive premium on recently issued TIPS that persists after new similar TIPS are issued and hence is different from the on-the-run phenomenon observed in the Treasury market.

This paper estimates the time-varying responses of stock and house prices to changes in monetary policy in the United States. To this end, I augment a time-varying vector autoregressive model VAR with a series of monetary policy surprises obtained from federal funds futures, as a proxy for structural monetary policy shocks. The series of surprises enters the model as an exogenous variable and I show analytically that this approach gives identical relative impulse responses compared with an identification that uses the proxy as an external instrument within a constant parameter VAR.

However, the exogenous variable approach allows for a convenient and tractable extension to a time-varying parameter VAR that is estimated with standard Bayesian methods. The results show that stock and house prices have been less responsive to monetary policy shocks during periods of high and rising asset prices.

Moreover, I find that attempts by the Federal Reserve to lean against the house price boom before the Great Recession would have come with the risk of large deviations from its output target. International Transmission of Japanese Monetary Shocks Under Low and Negative Interest Rates: A Global Favar Approach Mark M. We examine the implications of Japanese monetary shocks under recent very low and sometimes negative interest rates to the Japanese economy as well as three of its major trading partners: Korea, China and the United States.

We follow the literature in using movements in 2-year Japanese government bond rates as proxies for changes in monetary conditions in the neighborhood of the zero lower bound. We examine the implications of shocks to the 2-year rate in a series of factor-augmented vector autoregressive - or FAVAR - models, in which both local and global conditions are proxied by latent factors generated from domestic economic indicators and weighted indicators of major trading partners, respectively.

Our results suggest that shocks to 2-year Japanese rates do have substantive impacts on Japanese economic activity and inflation in conditions of low or even negative short-term rates.

However, we find only modest global spillovers from Japanese monetary policy shocks, as their impact on the economic conditions of major Japanese trading partners is muted, particularly relative to the impact of innovations in 2-year U.

Treasury yields over the same period. A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt Jens H. Researchers have debated the extent of the decline in the steady-state short-term real interest rate—that is, in the so-called equilibrium or natural rate of interest. We examine this issue using a dynamic term structure finance model estimated directly on the prices of individual inflation-indexed bonds with adjustments for real term and liquidity risk premiums.

Our methodology avoids two pitfalls of previous macroeconomic analyses: We estimate that the equilibrium real rate has fallen about 2 percentage points and appears unlikely to rise quickly.

Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between and and for the post-WW2 period, and holds both within and between countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add little predictive power relative to that of credit growth on the asset side of the balance sheet.

However, higher capital buffers have social benefits in terms of macro-stability: Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment. Based on these observations we have argued in Hornstein, Kudlyak, and Lange for an alternative measure of resource utilization in the labor market, a non-employment index, which is more comprehensive than the standard unemployment rate.

In this article we show how the NEI fits into recent extensions of the matching function which is a standard macroeconomic approach to model labor markets with frictions, how it affects estimates of the extent of labor market frictions, and how these frictions have changed in the Great Recession. Statistical agencies typically impute inflation for disappearing products from the inflation rate for surviving products. As some products disappear precisely because they are displaced by better products, inflation may be lower at these points than for surviving products.

As a result, creative destruction may result in overstated inflation and understated growth. We use a simple model to relate this "missing growth" to the frequency and size of various kinds of innovations.

Census data, we then apply two ways of assessing the magnitude of missing growth for all private nonfarm businesses for The first approach exploits information on the market share of surviving plants.

The second approach applies indirect inference to firm-level data. How banks cope with loss Rhys M. Using detailed bank balance sheet data we examine how banks respond to a net worth shock. We make use of variation in banks' loan exposure to industries adversely affected by the oil price declines of and the implied variation in losses resulting from credit deterioration in those industries. In response to these losses, exposed banks reduced the risk of their balance sheets by shifting away from portfolio lending and towards assets with lower risk weights.

Banks tightened credit on corporate lending and on mortgages that they would ultimately hold in their portfolio. However, they expanded credit for mortgages to be securitized and increased their holdings of agency mortgage backed securities. It appears that banks respond to a negative shock by de-risking rather than a uniform reduction in lending. In terms of the ultimate impact on borrowers, we find that the shock had only a minimal impact on the overall quantity of loans supplied to firms or households, reflecting substitution to other sources of financing.

The findings have significant implications for regulatory policy and theories of financial frictions. Fixing the exchange rate constrains monetary policy. Along with unfettered cross-border capital flows, the trilemma implies that arbitrage, not the central bank, determines how interest rates fluctuate.

The annals of international finance thus provide quasi-natural experiments with which to measure how macroeconomic outcomes respond to policy rates. Based on historical data sincewe estimate the local average treatment effect LATE of monetary policy interventions and examine its implications for the population ATE with a trilemma instrument. Using a novel control function approach we evaluate the robustness of our findings to possible spillovers via alternative channels. Our results prove to be robust.

We find that the effects of monetary policy are much larger than previously estimated, and that these effects are state-dependent. We develop and assess new time series measures of economic sentiment based on computational text analysis of economic and financial newspaper articles from January to April The text analysis is based on predictive models estimated using machine learning techniques from Kanjoya.

We analyze four alternative news sentiment indexes. We find that the news sentiment indexes correlate strongly with contemporaneous business cycle indicators. We also find that innovations to news sentiment predict future economic activity. For some of these economic outcomes, there is evidence that the news sentiment measures have significant predictive power even after conditioning on these survey-based measures. Intergenerational Linkages in Household Credit Andra C.

A one standard deviation higher parental credit risk score when the child is 19 is associated with a 24 percent reduction in the likelihood that the child goes bankrupt by age 29, a 36 percent lower likelihood of other serious default, a 35 point higher child credit score, and a 23 percent higher chance of the child becoming a homeowner.

The linkages persist after controlling for parental income. The linkages are stronger in cities with lower intergenerational income mobility, implying that common factors might drive both. Existing measures of state-level educational policy have limited effects on the strength of the linkages. Evidence from a sample of siblings suggests that the linkages might be largely due to family fixed effects.

Measuring the Effects of Dollar Appreciation on Asia: Exchange rate shocks have mixed effects on economic activity in both theory and empirical VAR models. In this paper, we extend the empirical literature by considering the implications of a positive shock to the U. Korea, Japan and China. The FAVAR framework allows us to represent a country's aggregate economic activity by a latent factor, generated from a broad set of underlying observable economic indicators.

We find that a dollar appreciation shock reduces economic activity and inflation not only for the U. This result, which is robust to a number of alternative specifications, suggests that in spite of their disparate economic structures and policy regimes, the dollar appreciation shock affects the Asian economies primarily through its impact on U. While economic theory highlights the usefulness of flexible exchange rates in promoting adjustment in international relative prices, flexible exchange rates also can be a source of destabilizing shocks.

We find that when countries joining the euro currency union abandoned their national exchange rates, the adjustment of real exchange rates toward their long-run equilibrium surprisingly became faster. These findings support claims that flexible exchange rates are not necessary to promote long-run international relative price adjustment. Interactive Effects of House Price Appreciation and Mortgage Pricing Components Frederick T.

Previous research provides rationales for and evidence of a link between house price appreciation and mortgage choice, with higher appreciation associated with higher take-up rates for adjustable-rate mortgages relative to fixed-rate mortgages.

Research also finds mortgage interest rates and their underlying components to be important determinants of mortgage financing choices. In this paper we extend the earlier research and show that house price appreciation can have important interactive effects with those other determinants of mortgage financing choices.

The analysis focuses on the period from toan episode marked by rapid house price appreciation along with a persistent and notable increase in the use of adjustable-rate mortgage financing, including alternative mortgage products.

We find that higher house price appreciation dampened the estimated sensitivity of take-up rates among mortgage financing options to the underlying mortgage pricing components. The results, which are especially robust for fixed-rate and adjustable-rate mortgages that are fully amortized, were not driven solely by observations in markets with especially high rates of house price appreciation. Moreover, after taking into account the interactive effects with mortgage pricing components, house price appreciation is estimated to have had relatively little additional effect on take-up rates among mortgage financing options.

Currency Unions and Regional Trade Agreements: The effects of the European Economic and Monetary Union EMU and European Union EU on trade are separately estimated using an empirical gravity model.

Employing a panel approach with both time-varying country and dyadic fixed effects on a large span of data across both countries and timeit is found that EMU and EU each significantly boosted exports.

Newer members have experienced even higher trade as a result of joining the EU, but more time is necessary to see the effects of their joining EMU. Stress testing has become an important component of macroprudential regulation yet its goals and implementation are still being debated, reflecting the difficulty of designing such frameworks in the context of enormous model uncertainty. We illustrate methods for responding to possible misspecifications in models used for assessing bank vulnerabilities.

Finally, we show how the two approaches can be blended so that one can search for a worst case model subject to restrictions on its properties, informed by the regulator's judgment. We demonstrate the methods using the New York Fed's CLASS model, a top-down capital stress testing framework that projects the effect of macroeconomic scenarios on U. Meta-analysis of empirical findings suggests that there is solid consensus with respect to wages: Majority of the papers also find positive productivity spillovers as well as increase in skill premium as a result of FDI, especially in developing economies.

We analyze all the findings together to address possible mechanisms of FDI effects on labor in target firms, in competing firms, and in vertically related firms. We present a stylized model that is consistent with many empirical regularities found in meta-analysis of empirical literature. We introduce a simple representation of endogenous search effort into the standard matching function with job-seeker heterogeneity.

Banks and economic growth in developing countries: What about Islamic banks?: Cogent Economics & Finance: Vol 4, No 1

Using the estimated augmented matching function, we study the sources of changes in the average employment transition rate. In the standard matching function, the contribution of matching efficiency is decreasing in the matching function elasticity.

In contrast, for our matching function with variable search effort and small matching elasticity, search effort is procyclical, accounting for most of the transition rate volatility; and the decline of the aggregate matching efficiency accounts for a small part of the decline in the transition rate after For a large matching elasticity, search effort is countercyclical, and large movements in matching efficiency compensate for that; and the decline in the matching efficiency accounts for a large part of the decline in the transition rate after The data on employment transition rates provide evidence for endogenous search effort but do not separately identify cyclicality of search effort and matching elasticity.

In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort.

More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well as tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly.

Canadian Investment Review

The new stylized facts that we discover should prove fertile ground for the development of a new generation of macroeconomic models with a prominent role for financial factors.

Gertler and Gilchrist provide seminal evidence for the prevailing view that adverse shocks are propagated via credit constraints.

We find that large firms' short-term debt and sales contracted relatively more than those of small firms during the financial crisis and during most recessions since These results, which we show are robust to changes in the business cycle dating procedure, suggest that an alternative view may be needed to understand the prolonged recession following the financial crisis. The Impact of Weather on Local Employment: Using Big Data on Small Places Daniel J. I estimated the contemporaneous and cumulative effects of temperature, precipitation, snowfall, the frequency of very hot days, the frequency of very cold days, and natural disasters on private nonfarm employment growth.

The short-run effects of weather vary considerably across sectors and regions. Favorable weather in one county has positive spillovers to nearby counties but negative spillovers to distant counties.

Local climate mediates weather effects: Does Greater Inequality Lead to More Household Borrowing? Using household-level debt data over and local variation in inequality, we show that low-income households in high-inequality regions zip-codes, counties, states accumulated less debt relative to their income than low-income households in lower-inequality regions, contrary to the prevailing view.

Furthermore, the price of credit is higher and access to credit is harder for low-income households in high-inequality versus low-inequality regions. Lower quantities combined with higher prices suggest that the debt accumulation pattern by household income across areas with different inequality is a result of credit supply rather than credit demand. We propose a lending model to illustrate the mechanism. Sentiments and Economic Activity: Using data from the Michigan Survey, we find a strong relationship between expectations concerning national output growth and future state economic activity.

This linkage suggests that sentiment influences aggregate demand. This relationship is robust to a battery of sensitivity tests. However, national sentiment is also positively related to past state economic activity. We therefore turn to instrumental variables, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic.

This instrument is strong in the first stage, and confirms the relationship between sentiment and future state economic activity. What is the sustainable pace of GDP growth in the United States?

The main drivers of slow growth are educational attainment and demographics. First, rising educational attainment will add less to productivity growth than it did historically. Second, because of the aging and retirements of baby boomers, employment will rise more slowly than population which, in turn, is projected to rise slowly relative to history.

An upside risk is that we see another burst of information-technology-induced productivity growth similar to what we saw from to Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both? Wage gaps between workers with a college or graduate degree and those with only a high school degree rose rapidly in the United States during the s. Since then, the rate of growth in these wage gaps has progressively slowed, and though the gaps remain large, they were essentially unchanged between and I assess this flattening over time in higher education wage premiums with reference to two related explanations for changing U.

Analyses of wage and employment data from the U. Current Population Survey suggest that both factors have contributed to the flattening of higher education wage premiums.

The Social Cost of Near-Rational Investment Tarek A. We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare.

We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an increase in uncertainty and costly distortions in consumption, capital accumulation, and labor supply.

Currency Manipulation Tarek A. We propose a novel, risk-based transmission mechanism for the effects of currency manipulation: Currency manipulations by large countries also have external effects on foreign interest rates and capital accumulation. The size of this effect increases with the size of the target economy, offering a potential explanation why the vast majority of currency stabilizations in the data are to the U.

A large economy such as China stabilizing its exchange rate relative to a larger economy such as the U. The Outlook for U. Over the past 15 years, labor-quality growth has been very strong—defying nearly all earlier projections—and has added around 0.

Going forward, labor quality is likely to add considerably less and may even be a drag on productivity growth in the medium term. Using a variety of methods, we project that potential labor-quality growth in the longer run 7 to 10 years out is likely to fall in the range of 0. In the medium term, labor-quality growth could be lower or even negative, should employment rates of low-skilled workers make a cyclical rebound towards pre-recession levels.

The main uncertainties in the longer run are whether the secular decline in employment of low-skilled workers continues and whether the Great Recession pickup in educational attainment represents the start of a new boom or is simply a transitory reaction to a poor economy. The Intensity of Job Search and Search Duration R. We use panel data on individual applications to job openings on a job search website to study search intensity and search duration.

Our data allow us to control for the composition of job seekers and changes in the number of available job openings over the duration of search. We find that 1 the number of applications sent by a job seeker declines over the duration of search, and 2 longer-duration job seekers send relatively more applications per week throughout their entire search.

The latter finding contradicts the implications of standard labor search models. We argue that these models fail to capture an income effect in search effort that causes job seekers with the lowest returns to search to exert the highest effort.

We present evidence in support of this idea. A Portfolio Model of Quantitative Easing Jens H. This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, commonly known as quantitative easing QE. Two financial frictions—segmentation of the market for central bank reserves and imperfect asset substitutability—give rise to two distinct portfolio effects.

One derives from the reduced supply of the purchased assets. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.

Measuring the Natural Rate of Interest: For example, estimates using the Laubach-Williams model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates.

This paper applies the Laubach-Williams methodology to the United States and three other advanced economies—Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.

Computer code for Holston-Laubach-Williams working paper. Estimates from Holston-Laubach-Williams working paper. We build a two-sector DSGE model to study the impact of reserve requirement adjustments, a frequently-used policy tool, for capital reallocation and business cycle stabilization in China.

Increasing reserve requirements taxes SOE activity and reallocates resources to private firms. This raises aggregate productivity, as SOEs are relatively unproductive, but increases the incidence of costly SOE failures. Under our calibration, optimal reserve requirement adjustments complement interest rate policy in maintaining macroeconomic stability and improving welfare. An estimated model with labor search frictions and endogenous variations in search intensity and recruiting intensity does well in explaining the slow job recovery after the Great Recession.

The model features a sunk cost of vacancy creation, under which firms rely on adjusting both the number of vacancies and recruiting intensity to respond to aggregate shocks. This stands in contrast to the textbook model with free entry, which implies constant recruiting intensity.

Our estimation suggests that fluctuations in search and recruiting intensity help substantially bridge the gap between the actual and model-predicted job filling and finding rates. In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis.

For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the s and the early s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mids. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period.

In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence. Why Has the Cyclicality of Productivity Changed? What Does It Mean? After the mids, however, TFP became much less procyclical with respect to hours while labor productivity turned strongly countercyclical. The Zero Lower Bound ZLB on interest rates is often regarded as an important constraint on monetary policy.

To assess how the ZLB affected the Fed's ability to conduct policy, we estimate the effects of Fed communication on yields of different maturities in the pre-ZLB and ZLB periods. Before the ZLB period, communication affects both short and long-dated yields.

In contrast, during the ZLB period, the reaction of yields to communication is concentrated in longer-dated yields. Our findings support the view that the ZLB did not put such a critical constraint on monetary policy, as the Fed retained some ability to affect long-term yields through communication.

Demographics and Real Interest Rates: The demographic transition can affect the equilibrium real interest rate through three channels.

An increase in longevity-or expectations thereof-puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in the population growth rate has two counteracting effects. On the one hand, capital per-worker rises, thus inducing lower real interest rates through a reduction in the marginal product of capital.

On the other hand, the decline in population growth eventually leads to a higher dependency ratio the fraction of retirees to workers. Because retirees save less than workers, this compositional effect lowers the aggregate savings rate and pushes real rates up. We calibrate a tractable life-cycle model to capture salient features of the demographic transition in developed economies, and find that its overall effect is a reduction of the equilibrium interest rate by at least one and a half percentage points between and Demographic trends have important implications for the conduct of monetary policy, especially in light of the zero lower bound on nominal interest rates.

Other policies can offset the negative effects of the demographic transition on real rates with different degrees of success. The Intensive and Extensive Margins of Real Wage Adjustment Mary C. Using 35 years of data from the Current Population Survey we decompose fluctuations in real median weekly earnings growth into the part driven by movements in the intensive margin-wage growth of individuals continuously full-time employed-and movements in the extensive margin-wage differences of those moving into and out of full-time employment.

The relative importance of these two margins varies significantly over the business cycle. When labor markets are tight, continuously full-time employed workers drive wage growth. During labor market downturns, the procyclicality of the intensive margin is largely offset by net exits out of full-time employment among workers with lower earnings.

This leads aggregate real wages to be largely acyclical. Most of the extensive margin effect works through the part-time employment margin. Notably, the unemployment margin accounts for little of the variation or cyclicality of median weekly earnings growth. Does the United States have a Productivity Slowdown or a Measurement Problem? Aftermeasured growth in labor productivity and total factor productivity TFP slowed. We find little evidence that the slowdown arises from growing mismeasurement of the gains from innovation in information-technology IT -related goods and services.

First, mismeasurement of IT hardware is significant prior to the slowdown and because the domestic production of these products has fallen, the quantitative effect on productivity is larger in the period than since, despite mismeasurement worsening for some types of IT. Hence, our adjustments make the slowdown in labor productivity worse. The effect on TFP is more muted. Second, many of the tremendous consumer benefits from smartphones, Google searches, and Facebook are, conceptually, non-market: Consumers are more productive in using their nonmarket time to produce services they value.

These benefits raise consumer well-being but do not imply that market-sector production functions are shifting out more rapidly than measured. Moreover, estimated gains in non-market production are too small to compensate for the loss in overall well-being from slower market-sector productivity growth.

In addition to IT, other measurement issues we can quantify such as increasing globalization and fracking are also quantitatively small relative to the slowdown. In the context of recent housing busts in the United States and other countries, many observers have highlighted the role of credit and speculation in fueling unsustainable booms that lead to crises. Motivated by these observations, we develop a model of credit-fuelled bubbles in which lenders accept risky assets as collateral.

Booming prices allow lenders to extend more credit, in turn allowing investors to bid prices even higher. Eager to profit from the boom for as long as possible, asymmetrically informed investors fuel and ride bubbles, buying overvalued assets in hopes of reselling at a profit to a greater fool. Lucky investors sell the bubbly asset at peak prices to unlucky ones, who buy in hopes that the bubble will grow at least a bit longer.

In the end, unlucky investors suffer losses, default on their loans, and lose their collateral to lenders. In our model, tighter monetary and credit policies can reduce or even eliminate bubbles. We study the transmission of financial sector shocks across borders through international bank connections.

For this purpose, we use data on long-term interbank loans among more than 6, banks during to construct a yearly global network of interbank exposures. We estimate the effect of direct first-degree and indirect second-degree exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks' profit margins, thereby reducing their returns. Indirect exposures to crisis countries enhance this effect, while indirect exposures to non-crisis countries mitigate it.

Furthermore, crisis exposures have real effects in that they reduce banks' supply of domestic and cross-border loans. Our results, based on a large global sample, support the notion that interconnected financial systems facilitate shock transmission. We build a flexible model with search frictions in three markets: We then apply this model called CLG to three different economies: In the goods market, adverse supply shocks are amplified through their propagation to the demand side, as they also imply income losses for consumers.

Finally, the speed of matching in the goods market and the credit market accounts for a small fraction of unemployment: Most of the variation in unemployment comes from the speed of matching in the labor market. Exchange Rates and the Capital Stock Tarek A. We investigate the link between stochastic properties of exchange rates and differences in capital-output ratios across industrialized countries. To this end, we endogenize capital accumulation within a standard model of exchange rate determination with nontraded goods.

The model predicts that currencies of countries that are more systemic for the world economy countries that face particularly volatile shocks or account for a large share of world GDP appreciate when the price of traded goods in world markets is high. As a consequence, more systemic countries face a lower cost of capital and accumulate more capital per worker. In this sense, the stochastic properties of exchange rates map to fundamentals in the way predicted by the model.

We extend the basic representative-household New Keynesian model of the monetary transmission mechanism to allow for a spread between the interest rate available to savers and borrowers. We find variation in these spreads over time has consequences both for the equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation.

Nonetheless, the target in the basic model provides a good approximation to optimal policy. Cyclical and Market Determinants of Involuntary Part-Time Employment Robert G. We examine the determinants of involuntary part-time employment, focusing on variation associated with the business cycle and variation attributable to more persistent structural features of the labor market. We conduct regression analyses using state-level panel and individual data for the years The results show that the combination of cyclical variation and the influence of market-level factors can explain virtually all of the variation in the aggregate incidence of involuntary part-time employment since the Great Recession.

Unconventional Monetary Policy and the Dollar: We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered its policy rate to the effective lower bound have had larger effects on the value of the dollar.

In particular, we document that the impact on the dollar has been roughly three times that following conventional policy changes prior to the financial crisis.

We estimate the upper-level elasticity of substitution between goods and services of a nested aggregate CES preference specification. We show how this elasticity can be derived from the long-run response of the relative price of a good to a change in its VAT rate.

We estimate this elasticity using new data on changes in VAT rates across 74 goods and services for 25 E. Our point estimates are of an upper-level elasticity of 1, at a high level of aggregation that distinguishes 10 categories of goods and services, and 3, at the lowest level of aggregation with 74 categories. Persistently low real interest rates have prompted the question whether low interest rates are here to stay. This essay assesses the empirical evidence regarding the natural rate of interest in the United States using the Laubach-Williams model.

Since the start of the Great Recession, the estimated natural rate of interest fell sharply and shows no sign of recovering. These results are robust to alternative model specifications. If the natural rate remains low, future episodes of hitting the zero lower bound are likely to be frequent and long-lasting. In addition, uncertainty about the natural rate argues for policy approaches that are more robust to mismeasurement of natural rates.

Robust Bond Risk Premia Michael D. A consensus has recently emerged that variables beyond the level, slope, and curvature of the yield curve can help predict bond returns. This paper shows that the statistical tests underlying this evidence are subject to serious small-sample distortions. We propose more robust tests, including a novel bootstrap procedure specifically designed to test the spanning hypothesis. We revisit the analysis in six published studies and find that the evidence against the spanning hypothesis is much weaker than it originally appeared.

Our results pose a serious challenge to the prevailing consensus. We explore the question of optimal aggregation level for stress testing models when the stress test is specified in terms of aggregate macroeconomic variables, but the underlying performance data are available at a loan level.

We study this question for a large portfolio of home equity lines of credit. We conduct model comparisons of loan-level default probability models, county-level models, aggregate portfolio-level models, and hybrid approaches based on portfolio segments such as debt-to-income DTI ratios, loan-to-value LTV ratios, and FICO risk scores.

For each of these aggregation levels we choose the model that fits the data best in terms of in-sample and out-of-sample performance. We then compare winning models across all approaches. We document two main results. First, all the models considered here are capable of fitting our data when given the benefit of using the whole sample period for estimation.

Second, in out-of-sample exercises, loan-level models have large forecast errors and underpredict default probability. Average out-of-sample performance is best for portfolio and county-level models. However, for portfolio level, small perturbations in model specification may result in large forecast errors, while county-level models tend to be very robust. We conclude that aggregation level is an important factor to be considered in the stress-testing model design.

Despite the general consensus that stress testing has been useful in financial and macro-prudential regulation, test techniques are still being debated. This paper proposes using robust forecasting analysis to construct adverse scenarios using a benchmark model that includes a modified worst-case distribution.

These scenarios give regulators a way to identify vulnerabilities, while acknowledging that models may be misspecified in unknown ways. Is China Fudging its Figures? Evidence from Trading Partner Data John G.

We address this question by using trading-partner exports to China as an independent measure of its economic activity from We find that the information content of Chinese GDP improves markedly after We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures.

We find that activity factors based on the first principal component of sets of indicators options trading margin account substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: Adding GDP to this group only modestly improves in-sample performance.

Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity. Currency Unions and Trade: In this paper, we use a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union EMU.

We have three findings. First, our assumption of symmetry between the effects of entering and leaving a currency union seems reasonable in the data but is uninteresting. Second, EMU typically has a smaller trade effect than other currency unions; it has a mildly stimulating effect at best. Third and most importantly, estimates of the currency union effect on trade are sensitive to the exact econometric methodology; the lack of consistent and robust evidence undermines confidence in our ability to reliably estimate the effect of currency union on trade.

What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms, asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries.

Credit-financed housing price bubbles have emerged as a particularly dangerous phenomenon. Bond Vigilantes and Inflation Andrew K. Domestic bond markets allow governments to inflate away their debt obligations, but also create a potential anti-inflationary force of bond holders.

We develop a simple model where bond issuance may lead to political pressure on the government to choose a lower inflation rate. This effect is insensitive to a variety of estimation strategies and methods to account for potential endogeneity. Protecting Working-Age People with Disabilities: Experiences of Four Industrialized Nations Richard V. Although industrialized nations have long provided public protection to working-age individuals with disabilities, the form has changed over time.

The impetus for change has been multifaceted: We describe the evolution of disability programs in four countries: Germany, the Netherlands, Sweden, and the United States. We show how growth in the receipt of publicly provided disability benefits has fluctuated over time and discuss how policy choices played a role. Based on our descriptive comparative analysis we summarize shared experiences that have the potential to benefit policymakers in all countries.

Physician Competition and the Provision of Care: We focus on cardiologists treating patients with a first-time heart attack treated in the emergency room. Physician concentration has a small, but statistically significant effect on service utilization. A one-standard deviation increase in cardiologist concentration causes a 5 percent increase in cardiologist service provision.

Cardiologists in more concentrated markets perform more intensive procedures, particularly, diagnostic procedures—services in which the procedure choice is more discretionary. Higher concentration also leads to fewer readmissions, implying potential health benefits. These findings are potentially important for antitrust analysis and suggest that changes in organizational structure in a market, such as a merger of physician groups, not only influences the negotiated prices of services, but also service provision.

The Effect of State Taxes on the Geographical Location of Top Earners: We quantify how sensitive is migration by star scientist to changes in personal and business tax differentials across states. The long run elasticity of mobility relative to taxes is 1. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that state taxes matter.

Domestic Bond Markets and Inflation Andrew K. Abstract This paper explores the relationship between inflation and the existence of a local, nominal, publicly-traded, long-maturity, domestic-currency bond market.

Bond holders are exposed to capital losses through inflation and therefore represent a potential anti-inflationary force; we ask whether their influence is apparent both theoretically and empirically. We develop a simple theoretical model with heterogeneous agents where the issuance of such bonds leads to political pressure on the government to choose a lower inflation rate. We then check this prediction empirically using a panel of data, examining inflation before and after the introduction of a domestic bond market.

Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without one. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal variables suggested by theory to account for the potential endogeneity of domestic bond issuance.

Notably, we do not find a similar effect for trader joe jacksonville fl 2016 or foreign-currency bonds. Does Medicare Part D Save Lives? We examine the impact of Medicare Part D on mortality for the population over the age of We identify the effects of the reform using variation in drug coverage across counties before the reform was implemented. Studying mortality rates immediately before and after the reform, we find that cardiovascular-related mortality drops significantly in those counties most affected by Part D.

Estimates suggest that up to 26, more individuals were alive in mid because of the Part D implementation in The Effect of Extended Unemployment Insurance Benefits: Evidence from the Phase-Out Henry S. Unemployment Insurance benefit durations were extended during the Great Recession, reaching 99 weeks for most recipients. The extensions were rolled back and eventually terminated by the end of Using matched World of warcraft gold farming 4.3 data fromwe estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback.

In both periods, we find little or no effect on job-finding but a reduction in labor force exits due to benefit availability. We estimate that the rollbacks reduced the labor force participation rate by about 0. Explaining the Boom-Bust Cycle in the U. Conditional on the observed paths for U. We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data.

Counterfactual simulations show that shifting lending standards as measured by a loan-to-equity limit were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging. Resolving the Spanning Puzzle in Macro-Finance Term Structure Models Michael D.

Most existing macro-finance term structure models MTSMs appear incompatible with regression evidence of unspanned macro risk. However, our empirical analysis supports the previous spanned models.

Using simulations to investigate the spanning implications of MTSMs, we show that a canonical spanned model is consistent with the regression evidence; thus, we resolve the spanning puzzle.

In addition, direct likelihood-ratio tests find that the knife-edge restrictions of unspanned models are rejected with high statistical significance, though these restrictions have only small effects on cross-sectional fit and estimated term premia. Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning years of modern economic history in the advanced economies.

We exploit the implications of the macroeconomic policy trilemma to identify exogenous variation in monetary conditions: We use novel instrumental variable local projection methods to demonstrate that loose monetary conditions lead to booms in real estate lending and house prices bubbles; these, in turn, materially heighten the risk of financial crises.

Both effects have become stronger in the postwar era. We examine a model of consumer learning and price signaling where price and quality are optimally chosen by a monopolist. Through numerical solution and simulation of the model we find that price signaling causes the firm to raise its prices, lower its quality, and dampen the degree to which it passes on cost shocks to price. We identify two mechanisms through which signaling affects pass-through. The first is static: The second is dynamic: We also find that signaling can lead to asymmetric pass-through.

If the cost of adjusting quality is sufficiently high, then cost increases pass through to a greater extent than cost decreases. Financial Frictions, the Housing Market, and Unemployment William A. We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners learn how to trade stocks for beginners home equity as collateral to finance idiosyncratic consumption opportunities.

A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises Simon H.

The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications.

In this paper, we examine the effects of the recent U. We find global banks using the foreign branches in Hong Kong as a funding source during the liquidity crunch in home country, suggesting that global banks manage their liquidity risk globally.

After the central bank at home country introduced liquidity facility to relieve funding pressure, the effect disappeared. We also find strong evidence that foreign branches originated from crisis countries lend significantly less in Hong Kong relative to their controls, suggesting the presence of the lending channel in the transmission of shocks from the home country to the host country.

The renewal of interest in macroeconomic theories of search frictions in the goods market requires a deeper understanding of the cyclical properties of the intensive reviews of futures trading courses in singapore in this market.

We review the theoretical mechanisms that accessories for remington 700 sps tactical either procyclical or countercyclical movements in time spent searching for consumer goods and services, and then use the American Time How to low alch and make money Survey to measure shopping time through the Great Recession.

Average time spent searching declined in the aggregate over the period compared how did warren jeffs make moneyand the decline was largest for the unemployed who went from spending more to less time searching for goods than the employed.

Cross-state regressions point towards a procyclicality of consumer search in the goods market. At the individual level, time allocated to different shopping activities is increasing in individual and household income.

Overall, this body of evidence supports procyclical consumer search effort in the goods market and a conclusion that price comparisons cannot be a driver of business cycles. This paper unveils a new resource for macroeconomic research: Household debt to asset ratios have risen substantially in many countries. Financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries.

Housing finance has come to play a central role in the modern macroeconomy. Explaining Exchange Rate Anomalies in a Model with Taylor-rule Fundamentals and Consistent Expectations Kevin J.

We introduce boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. Agents augment a lagged-information random walk forecast with a term that captures news about Taylor-rule fundamentals. The coefficient on fundamental news is pinned down using the moments of observable data such that the resulting forecast errors are close to white noise.

The model generates volatility and persistence that is remarkably similar to that observed in monthly exchange rate data for Canada, Japan, and the U.

Regressions performed on the tunisian stock market a regime switching approach data can deliver the well-documented forward premium anomaly.

The Extent and Cyclicality of Career Changes: Evidence for the U. Using quarterly data for the U. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions.

Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains. We examine the composition and drivers of cross-border bank lending between anddistinguishing between syndicated and non-syndicated loans.

We show that on-balance sheet syndicated loan exposures, which account for almost one third of total cross-border loan exposures, increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis. Our empirical analysis of the drivers of cross-border loan exposures in a large bilateral dataset leads to three main results. First, banks with lower levels of capital favor syndicated over other kinds of cross-border loans.

Second, borrower country characteristics such as level of development, economic size, and capital account openness, are less important in driving syndicated than non-syndicated loan activity, suggesting a diversification motive for syndication. Third, information asymmetries between lender and borrower countries became more binding for both types make money gt5 ps3 cross-border lending activity during the recent crisis.

Firms in countries outside global financial centers have traditionally found it difficult to place bonds in international markets in their own currencies. Looking at a large sample of private international bond issues in the last 20 years, however, we observe an increase in bonds denominated in issuers' home currencies.

This trend appears to have accelerated notably after the global financial crisis. We present a model that illustrates how the global financial crisis could have had a persistent impact on home currency bond issuance.

The model shows that firms that issue for the first time in their home currencies during disruptive episodes, such as the crisis, find their relative costs of issuance in home currencies remain lower after conditions return to normal, partly due to the increased depth of the home currency debt market.

Empirically, we show that increases in home currency foreign bond issuance occurred predominantly in advanced economies with good fundamentals and especially in the aftermath of the crisis. Consistent with the predictions of the model, financial firms - which are more homogeneous than their non-financial counterparts - in countries with stable inflation and low government debt increased home currency issuance by more.

Our results point to the importance of both global financial market conditions and domestic economic policies in the share of home currency issuance. Transmission of Quantitative Easing: The Role of Central Bank Reserves Jens H.

We argue that the issuance of central bank reserves per se can matter for the effect of central bank large-scale asset purchases—commonly known as quantitative easing—on long-term interest rates.

This effect is independent of the club penguin money maker free no download purchased, and runs through a reserve-induced portfolio balance channel.

For evidence we analyze the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities.

We find that declines in long-term yields following the announcements mainly reflected reduced term premiums suggestive of reserve-induced portfolio balance effects. We study how real exchange rate dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence --policy inertia or persistent policy shocks -- is key.

When the monetary policy rule has a strong interest rate smoothing component, these models fail to generate high real exchange rate persistence in response to monetary shocks, as policy inertia hampers their ability to generate a hump-shaped response to such shocks. Moreover, in the presence of persistent monetary shocks, increasing policy inertia may decrease real exchange rate persistence. We study an investor who is unsure of the dynamics of the economy. Not only are parameters unknown, but the investor does not even european stock markets wiki what order model to estimate.

She estimates her consumption process nonparametrically — allowing potentially infinite-order dynamics — and prices strategy on indicators for binary options 60 seconds using a pessimistic model that minimizes lifetime utility subject to a constraint on statistical plausibility.

OECD Journal: Economic Studies - OECD

The equilibrium is exactly solvable and we show that the pricing model always includes long-run risks. With risk aversion of 4. The paper provides a novel link between ambiguity aversion and non-parametric estimation. Productivity and Potential Output Before, During, and After the Great Recession John G. The slowdown is located in industries that produce information technology IT or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains.

A calibrated growth model suggests trend productivity growth has returned close to its pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office.

NBER Data replication file re WP Online Appendix to WP A Wedge in the Dual Mandate: Monetary Policy and Long-Term Unemployment Glenn D. In standard macroeconomic models, the two objectives in the Federal Reserve's dual mandate—full employment and price stability—are closely intertwined.

We motivate and estimate an alternative model in which long-term unemployment varies endogenously over the business cycle but does not affect price inflation.

In this new model, an increase in long-term unemployment as a share of total unemployment creates short-term tradeoffs for optimal monetary policy and a wedge in the dual mandate. In particular, faced with high long-term unemployment following the Great Recession, optimal monetary policy would allow inflation to overshoot its target more than in standard models.

Recent Extensions of U. Search Responses in Alternative Labor Market States Robert G. I estimate the impact of these extensions on job search, comparing them with the more limited extensions associated with the milder recession. The analyses rely on monthly matched microdata from the Current Population Survey.

I find that a week extension of UI benefits raises unemployment duration by about 1. This estimate lies in the middle-to-upper end of the range of past estimates. Monetary Policy Tracked the Efficient Interest Rate? Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of the monetary policy reaction function, in which the interest rate tracks the evolution of a Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.

This surprising result holds for a wide variety of specifications of the other ingredients of the policy rule and of approaches to the measurement of the output gap. Moreover, it is robust across easy way to make money rs f2p different models of private agents' behavior.

Online Appendix to Working Paper Labor Markets in the Global Financial Crisis: The Good, the Bad and the Ugly Mary C.

economic determinants of the correlation structure across international equity markets

These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labor market policies in response to the global demand shock.

Greater financial integration between core and peripheral EMU members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms.

Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro's introduction, core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.

Moreover, we present evidence that large core EMU banks' lending to periphery borrowers trading wheat options linked to their borrowing from outside of the euro area.

Inflation Expectations and the News Michael D. This paper provides new evidence on the importance of inflation expectations for variation in nominal interest rates, based on both market-based and survey-based measures of inflation expectations. Using the information in TIPS breakeven rates and inflation swap rates, I document that movements in inflation compensation are important for explaining variation in long-term nominal interest rates, both unconditionally as well as conditionally on macroeconomic data surprises.

Daily changes in inflation compensation and changes in long-term nominal rates generally display a close statistical relationship. The sensitivity of inflation compensation to macroeconomic data surprises is substantial, and it explains a sizable share of the macro response of nominal rates.

The paper also documents that survey expectations of inflation exhibit significant comovement with variation in nominal interest rates, as well as significant responses to macroeconomic news. Did Consumers Want Less Debt? We explore the sources of household balance sheet explain stock brokerage fees canadian following the collapse of the housing market in We then use the idea that renters, unlike homeowners, did not experience an adverse wealth shock when the 5 minute world markets binary options brokers market collapsed to examine the relative importance of two explanations for the observed deleveraging and the sluggish pickup in consumption after First, households may have optimally adjusted to lower wealth by reducing their demand for debt and implicitly, their demand for consumption.

Alternatively, banks may have been more reluctant to lend in areas with pronounced real estate declines. Our evidence is consistent with the second explanation. Renters with low risk scores, compared to homeowners in the same markets, reduced their levels of nonmortgage debt and credit card debt more in counties where house prices fell more. The contrast suggests that the observed reductions in aggregate borrowing were more driven by cutbacks in the provision of credit than by a demand-based response to lower housing wealth.

Monetary Policy Effectiveness in China: Evidence from a FAVAR Model John G. We use a broad set of Chinese economic indicators and a dynamic factor model framework to estimate Chinese economic activity and inflation as latent variables. We incorporate these latent variables into a factor-augmented vector autoregression FAVAR to estimate the effects of Chinese monetary policy on the Chinese economy. A FAVAR approach is particularly well-suited to this analysis due to concerns about Chinese data quality, stock market for nike lack of a long history for many series, and the rapid institutional and structural changes that China has undergone.

We find that increases in bank reserve requirements reduce economic activity and inflation, consistent with previous studies. In contrast to much of the literature, however, we find that changes in Chinese interest rates also have substantial impacts on economic activity and inflation, while other measures of changes in credit conditions, such as shocks to M2 or lending levels, do not once other policy variables are taken into account.

Overall, our results indicate that the monetary policy transmission channels in China have moved closer to those of Western market economies. Many Unemployment Insurance UI recipients do not find new jobs before exhausting their benefits, even when benefits are extended during recessions. Using SIPP panel data covering the and recessions and their aftermaths, we identify individuals whose jobless remove call barring samsung galaxy ace outlasted their UI benefits exhaustees and examine household income, program participation, and health-related outcomes during the six months following UI exhaustion.

For the average exhaustee, the loss of UI benefits is only slightly offset by increased participation in other safety net programs e. Self-reported disability also rises following UI exhaustion. These patterns do not vary dramatically across the UI extension episodes, household demographic groups, or broad income level prior to job loss. The results highlight the unique, important role of UI in the U. Mortgage Choice in the Housing Boom: Impacts of House Price Appreciation and Borrower Type Frederick T.

The subsequent collapse of the housing market and the high default rates on residential mortgages raise the issue of whether the pace of house price appreciation and the mix of borrowers may have affected the influence of fundamentals in housing and mortgage markets.

This paper examines binary options is not gambling issue in connection with one aspect of mortgage financing, the choice among fixed-rate and adjustable-rate mortgages.

This analysis is motivated in part by the increased use of adjustable-rate mortgage financing, notably among lower credit-rated borrowers, during the peak of the housing boom. Based on analysis of a large sample of loan level data, we find strong evidence that house price appreciation dampened the influence of a number of fundamentals mortgage pricing terms and other donchian system forex trading rate related metrics that previous research finds to be accessories for remington 700 sps tactical determinants of mortgage financing choices.

With regard to the mix of borrowers, the evidence indicates that, while low risk-rated borrowers were affected on the margin more by house price appreciation, on balance those borrowers tended be at least as responsive to fundamentals as high risk rated borrowers. The higher propensity of low credit-rated borrowers to choose adjustable-rate financing compared with high credit-rated borrowers in the housing boom appears to have been related to borrower credit risk metrics.

Given the evidence related to loan pricing terms, other interest rate metrics and fixed effects, the relation free day trading chat rooms credit risk to mortgage financing choice seems more consistent with considerations such as credit constraints, risk preferences, and mortgage tenor than just a systematic lack of financial sophistication among higher credit risk borrowers.

We estimate the importance of precautionary saving by using China's large-scale reform of state-owned enterprises SOEs in the late s as a natural experiment to identify changes in income uncertainty. Before the reform, SOE workers enjoyed similar job security as government employees. We exploit the evolution of China's labor market reform and use information about when and how a worker obtained his job for identifying potential self-selection biases.

We estimate that precautionary savings account for about 40 percent of SOE household wealth accumulation between and We also find evidence that demographic groups more vulnerable to unemployment risks accumulated more precautionary wealth in response to the reform. Can Spanned Term Structure Factors Drive Stochastic Yield Volatility? The ability of the usual factors from empirical arbitrage-free representations of the term structure -- that is, spanned factors -- to account for interest rate volatility dynamics has been much debated.

We examine this issue with how could the stock market crash of 1929 been prevented comprehensive set of new arbitrage-free term structure specifications that allow for spanned stochastic volatility to be linked to one or more of the yield curve factors. Treasury yields, we find that much realized stochastic volatility cannot be associated with spanned term structure factors.

However, a simulation study reveals that the usual realized volatility metric is misleading when yields contain plausible measurement noise.

We argue that other metrics should be used to validate stochastic volatility models. The Future of U. Economic Growth John G. As these transition dynamics fade, U. However, the rise of China, India, and other emerging economies may allow another few decades of rapid growth in world researchers.

Finally, and newmarket livestock market speculatively, the shape of the idea production function introduces a fundamental uncertainty into the future of growth. For example, the possibility that artificial intelligence will allow machines to replace workers to some extent could lead to higher growth in the future.

While discrete measures have been advocated in the literature, they pose estimation problems under fixed effects due to incidental parameter issues. We use two methods to address these issues, the bias-correction method of Fernandez-Val, which directly computes the marginal effects, and the parameterized Wooldridge method.

Estimation under the Fernandez-Val method consistently indicates a statistically and economically important role for income in democracy, while under the Wooldridge method we obtain much smaller and not always statistically significant coefficients. A likelihood ratio test rejects the pooled full sample used under off the stock market crash of 1929 causes Wooldridge estimation method against the smaller fixed effects sample that only admits observations with changing democracy measures.

Our analysis therefore favors a positive role for income in promoting democracy, but does not preclude a role for institutions in determining democratic status as the omitted countries under Fernandez Val-fixed effect method appear to differ systematically by institutional quality measures which have a positive impact on democratization. Disability Benefit Growth and Disability Reform in the U.

Lessons from Other OECD Nations Richard V. Unsustainable growth in program costs and beneficiaries, together with a growing recognition that even people with severe colegio enforex salamanca can work, led to fundamental disability policy reforms in the Netherlands, Sweden, and Great Britain.

In Australia, rapid growth in disability recipiency led to more modest reforms. Here we describe the factors driving unsustainable DI program growth in the U. Although each country took a unique path to making and implementing fundamental reforms, shared lessons emerge from their experiences. Modeling Yields at the Zero Lower Bound: Are Shadow Rates the Solution? Treasury yields have been constrained to some extent by the zero lower bound ZLB on economic determinants of the correlation structure across international equity markets interest rates.

In modeling these yields, we compare the performance of a standard affine Gaussian dynamic term structure model DTSMwhich ignores the ZLB, and a shadow-rate DTSM, which respects the ZLB. We find that the standard affine model is likely to exhibit declines in fit and forecast performance with very low interest rates. In contrast, the shadow-rate model mitigates ZLB problems significantly and we document superior performance for this model class relationship between forex market and stock market the most recent period.

A Probability-Based Stress Test of Federal Reserve Assets and Income Jens H. To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios.

These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields. Two separate narratives have emerged in the wake of the Global Financial Crisis. One interpretation speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies.

However, the two may interact in important and understudied ways. This paper examines the co-evolution of public and private sector debt in advanced countries since Forex adalah riba find that in advanced economies significant financial stability risks have mostly come from private sector credit booms rather than from the expansion of public debt.

However, we find evidence that high levels of public debt have tended to exacerbate the effects of private sector deleveraging after crises, leading to more prolonged periods of economic depression. We uncover three key facts based on our analysis of around recessions and recoveries since Recent experience in the advanced economies provides a useful out-of-sample comparison, and meshes closely with these historical patterns.

Fiscal space appears to be a constraint in the aftermath of a crisis, then and now. This study examines the impact of major health insurance reform on payments made in the health care sector.

We study the prices gillette shake your money maker services paid to physicians in the privately insured market during the Massachusetts health care reform. The reform increased the number of insured individuals as well as introduced an online marketplace where insurers compete.

We estimate that, over the reform period, physician payments increased at least Payment increases began around the time legislation passed the House and Senate--the period in which there was a high probability of the bill eventually becoming law.

This result is consistent with fixed-duration payment contracts being negotiated in anticipation of future demand and competition. Furthermore, during the financial crisis, the extent to which banks delayed loan loss stock market integration and the global financial crisis is found to have had a significant effect on bank opacity, confirming an important concern raised by the Financial Crisis Advisory Group.

A Regime-Switching Model of the Yield Curve at the Zero Bound Jens H. This paper presents a regime-switching model of the yield curve with two states. One is a normal state, the other is a zero-bound state that represents the case when the monetary policy target rate is at its zero lower bound for a prolonged period.

The model delivers estimates of the time-varying probability of exiting the zero-bound state, and it outperforms standard three- and four-factor term structure models as well as a shadow rate ho chi minh stock trade center at matching short-rate expectations and the compression in yield volatility near the zero lower bound.

Declines in interest rates in advanced economies during the global financial crisis resulted in surges in capital flows to emerging market economies and triggered advocacy of capital control policies.

We evaluate the effectiveness for macroeconomic stabilization and the welfare implications of the use of capital account policies in a monetary DSGE model of a small open economy. Our model features incomplete markets, imperfect asset substitutability, and nominal rigidities.

In this environment, policymakers can respond to fluctuations in capital flows through capital account policies such as sterilized interventions and taxing capital inflows, in addition to conventional monetary policy. Our welfare analysis suggests that optimal sterilization and capital controls are complementary policies.

Shocks to Firms Mary C. The manner firms respond to shocks reflects fundamental features of labor, capital, and commodity markets, as well as advances in finance and technology. Such features are integral to constructing models of the macroeconomy.

In this paper we document secular shifts in the economic determinants of the correlation structure across international equity markets firms use to adjust to shocks that have consequences for their cyclical behavior. These new business cycle facts on the comovement of output and its inputs are a natural complement to analyzing output and its expenditure components.

Our findings shed light on the changing cyclicality of productivity in response to different shocks. We develop a multisector model in which capital and labor are free to move across firms within each sector, but cannot move across sectors. To isolate the role of sectoral specificity, we compare our model with otherwise identical multisector economies with either economy-wide or firm-specific trading hours anzac day 2014 wa markets.

Sectoral factor specificity generates within-sector strategic substitutability and tends to induce across-sector strategic complementarity in price setting. Our model can produce either more or less monetary non-neutrality than those other two models, depending on parameterization and the distribution of price rigidity across sectors.

Under the empirical distribution for the U. This is consistent with the idea that factor price equalization might take place gradually over time, so that firm-specificity may serve as make money posting ads for companies reasonable short-run approximation, whereas economy-wide markets are likely a better description of how factors of production are allocated in the longer run.

Implications stock market table worksheet Labor Market Frictions for Risk Aversion and Risk Premia Eric T. A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. The present paper analyzes how frictional labor markets affect that analysis. Risk aversion is higher: These predictions are consistent with empirical evidence from a variety of sources.

Traditional, fixed-labor measures of risk aversion show no stable relationship to the equity premium in a standard real business cycle model with article about stock market crash of 1929 frictions, while the closed-form expressions derived in the present paper match the equity premium closely.

What determines the frequency domain properties of a stochastic process? How much risk comes from high frequencies, business cycle frequencies or low frequency swings?

If these properties are under the influence of an agent, who is compensated by a principal according to the distribution of risk across frequencies, then the nature of this contracting problem will affect the spectral properties of the endogenous outcome.

We imagine two thought experiments: Thus, the regulator is fooled into thinking there has been an overall reduction in risk when, in fact, there has simply been a frequency shift. In the second thought experiment, the regulator is not myopic, but simply cares more about risk from certain frequencies, perhaps due to the preferences of the constituents he represents or because certain types of market incompleteness make certain frequencies of risk more damaging.

We model this intuition by positing a filter design problem for the agent and also by a particular type of portfolio selection problem, in which the agent chooses among investment projects with different spectral properties. We discuss implications of these models for macroprudential policy and regulatory arbitrage. Two notable examples are the Long-Run Risk and rare disaster frameworks. Such models are difficult to characterize from consumption data alone.

Accordingly, concerns have been raised regarding their specification. Acknowledging that both phenomena are naturally subject to ambiguity, we show that an ambiguity-averse agent may behave as if Long-Run Risk and disasters exist even if they do not or exaggerate them if they do. Consequently, prices may be misleading in characterizing these phenomena since they encode a pessimistic perspective of the data-generating process.

The Decline of the U. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. The relative stability of the aggregate labor share prior to the s in fact veiled substantial, though offsetting, movements in labor shares within industries.

By contrast, the recent decline has been dominated by trade and manufacturing sectors. Fourth, institutional explanations based on the decline in unionization also receive weak support. Finally, we provide evidence that highlights the offshoring of the labor-intensive component of the U. Does Quantitative Easing Affect Market Liquidity? We argue that central bank large-scale asset purchases—commonly known as quantitative easing QE —can reduce priced frictions to trading through a liquidity channel that operates by temporarily increasing the bargaining power of sellers in the market for the targeted securities.

We find that, for the duration of the program, the liquidity premium measure averaged about 10 basis points lower than expected. This suggests that QE can improve market liquidity. The Time for Austerity: Elevated government debt levels in advanced economies have risen rapidly as sovereigns absorbed private sector losses and cyclical deficits blew up in the Global Financial Crisis and subsequent slump.

A rush to fiscal austerity followed but its justifications and impacts have been heavily debated. Research on the effects of austerity on macroeconomic aggregates remains unsettled, mired by the difficulty of identifying multipliers from observational data.

This paper reconciles seemingly disparate estimates of multipliers within a unified framework. We do this by first evaluating the validity of common identification assumptions used by the literature and find that they are largely violated in the data. Next, we use new propensity score methods for time-series data with local projections to quantify how contractionary austerity really is, especially in economies operating below potential.

We find that the adverse effects of austerity may have been understated. Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited Joshua D. We develop flexible semiparametric time series methods that are then used to assess the causal effect of monetary policy interventions on macroeconomic aggregates. Our estimator captures the average causal response to discrete policy interventions in a macro-dynamic setting, without the need for assumptions about the process generating macroeconomic outcomes.

The proposed procedure, based on propensity score weighting, easily accommodates asymmetric and nonlinear responses. Application of this estimator to the effects of monetary restraint shows the Fed to be an effective inflation fighter. Our estimates of the effects of monetary accommodation, however, suggest the Federal Reserve's ability to stimulate real economic activity is more modest.

Estimates for recent financial crisis years are similar to those for the earlier, pre-crisis period. Some Evidence and Applications Kevin X.

This paper studies the empirical relevance of temptation and self-control using household-level data from the Consumer Expenditure Survey. We construct an infinite-horizon consumption-savings model that allows, but does not require, temptation and self-control in preferences.

In the presence of temptation, a wealth-consumption ratio, in addition to consumption growth, becomes a determinant of the asset-pricing kernel, and the importance of this additional pricing factor depends on the strength of temptation. To identify the presence of temptation, we exploit an implication of the theory that a more tempted individual should be more likely to hold commitment assets such as IRA or k accounts.

Our estimation provides empirical support for temptation preferences. Based on our estimates, we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle. We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions.

We argue that the labor channel, combined with the standard credit channel, provides a strong transmission mechanism that can deliver a potential solution to the Shimer puzzle. The model is confronted with U. The estimation results account for two prominent facts observed in the data.

First, land prices and unemployment move in opposite directions over the business cycle. Second, a shock that moves land prices also generates the observed large volatility of unemployment. Measuring the Effect of the Zero Lower Bound on Yields and Exchange Rates in the U. According to standard macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy.

However, these models also imply that asset prices and private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current level of the monetary policy rate.

Thus, interest rates with a year or more to maturity are arguably more relevant for asset prices and the economy, and it is unclear to what extent those yields have been affected by the zero lower bound. In this paper, we apply the methods of Swanson and Williams to medium- and longer-term yields and exchange rates in the U.

In particular, we compare the sensitivity of these rates to macroeconomic news during periods when short-term interest rates were very low to that during normal times.

We compare these findings to the U. Has the recent wave of capital controls and prudential foreign exchange FX measures been effective in promoting exchange rate stability?

We calculate daily measures of exchange rate volatility, absolute crash risk, and tail risk implied in currency option prices, and we construct indices of capital controls and prudential FX measures taking into account the exact date when policy changes are implemented.

Assessing the Historical Role of Credit: Business Cycles, Financial Crises, and the Legacy of Charles S. This paper provides a historical overview on financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves prediction of binary events and therefore fits modern statistical learning, signal processing theory, and classification methods.

The discussion also emphasizes the need to supplement statistics and computational techniques with economics. Monetary Policy Expectations at the Zero Lower Bound Michael D. We show that conventional dynamic term structure models DTSMs estimated on recent U. In contrast, shadow-rate DTSMs account for the ZLB by construction, capture the resulting distributional asymmetry of future short rates, and achieve good forecast performance.

These models provide more accurate estimates of the most likely path for future monetary policy—including the timing of policy liftoff from the ZLB and the pace of subsequent policy tightening. We also demonstrate the benefits of including macroeconomic factors in a shadow-rate DTSM when yields are constrained near the ZLB. State Incentives for Innovation, Star Scientists and Jobs: We evaluate the effects of state-provided financial incentives for biotech companies, which are part of a growing trend of placed-based policies designed to spur innovation clusters.

We estimate that the adoption of subsidies for biotech employers by a state raises the number of star biotech scientists in that state by about 15 percent over a three year period. Most of the gains are due to the relocation of star scientist to adopting states, with limited effect on the productivity of incumbent scientists already in the state.

The gains are concentrated among private sector inventors. We uncover little effect of subsidies on academic researchers, consistent with the fact that their incentives are unaffected.

Our estimates indicate that the effect on overall employment in the biotech sector is of comparable magnitude to that on star scientists. Consistent with a model where workers are fairly mobile across states, we find limited effects on salaries in the industry.

We uncover large effects on employment in the non-traded sector due to a sizable multiplier effect, with the largest impact on employment in construction and retail. Finally, we find mixed evidence of a displacement effect on states that are geographically. Are State Governments Roadblocks to Federal Stimulus? We examine how state governments adjusted spending in response to the large temporary increase in federal highway grants under the American Recovery and Reinvestment Act ARRA.

The mechanism used to apportion ARRA highway grants to states allows us to isolate exogenous changes in these grants. We find that states increased highway spending over to more than dollar-for-dollar with the ARRA grants they received. We examine whether rent- seeking efforts could help explain this result.

We find states with more political contributions from the public-works sector tended to spend more out of their ARRA highway funds than other states. A Defense of Moderation in Monetary Policy John C. This paper examines the implications of uncertainty about the effects of monetary policy for optimal monetary policy with an application to the current situation.

Using a stylized macroeconomic model, I derive optimal policies under uncertainty for both conventional and unconventional monetary policies. According to an estimated version of this model, the U. Optimal monetary policy absent uncertainty would quickly restore real GDP close to its potential level and allow the inflation rate to rise temporarily above the longer-run target. By contrast, the optimal policy under uncertainty is more muted in its response.

As a result, output and inflation return to target levels only gradually. This analysis highlights three important insights for monetary policy under uncertainty. First, even in the presence of considerable uncertainty about the effects of monetary policy, the optimal policy nevertheless responds strongly to shocks: Second, one cannot simply look at point forecasts and judge whether policy is optimal.

Indeed, once one recognizes uncertainty, some moderation in monetary policy may well be optimal. Third, in the context of multiple policy instruments, the optimal strategy is to rely on the instrument associated with the least uncertainty and use alternative, more uncertain instruments only when the least uncertain instrument is employed to its fullest extent possible.

We uncover a new channel through which international finance is related to international trade: Bank linkages are measured for each pair of countries in each year as a number of bank pairs in these two countries that are connected through cross-border syndicated lending.

Using a gravity approach to model trade with a full set of fixed effects source-year, target-year, source-targetwe find that new connections between banks in a given country-pair lead to an increase in trade flows between these countries in the following year.

We conjecture that the mechanism for this effect is the role bank linkages play in reducing export risk and present six sets of results supporting this conjecture. In particular, using industry--level trade data and controlling for country-pair-year and industry fixed effects, we find that new bank linkages have larger impacts on trade in industries with more differentiated goods, i.

Finally, we find that the formation of new bank linkages creates trade diversions from countries competing for similar imports. New Evidence from U. County Panel Data Mary C. A large body of past research, looking across countries, states, and metropolitan areas, has found positive and statistically significant associations between income inequality and mortality. By contrast, in recent years more robust statistical methods using larger and richer data sources have generally pointed to little or no relationship between inequality and mortality.

This paper aims both to document how methodological shortcomings tend to positively bias this statistical association and to advance this literature by estimating the inequality-mortality relationship. We use a comprehensive and rich new data set that combines U.

Using panel data estimation techniques, we find evidence of a statistically significant negative relationship between mortality and inequality. This finding that increased inequality is associated with declines in mortality at the county level suggests a change in course for the literature. In particular, the emphasis to date on the potential psychosocial and resource allocation costs associated with higher inequality is likely missing important offsetting positives that may dominate.

This paper presents empirical evidence on asset market linkages between China and Asia and how these linkages have shifted during and after the global financial crisis of We find only weak cross-country linkages in longer-term interest rates, but much stronger linkages in equity markets. This finding is consistent with the greater development and liberalization of equity markets relative to bond markets in China, as well as increasing business and trade linkages in the region.

We also find that the strength of the correlation of equity prices changes between China and other Asia countries increased markedly during the crisis and has remained high in recent years. By contrast, the transmission of U. The Effects of Unconventional and Conventional U. We examine the effects of unconventional and conventional monetary policy announcements on the value of the dollar using high-frequency intraday data.

Identifying monetary policy surprises from changes in interest rate futures prices in narrow windows around policy announcements, we find that surprise easings in monetary policy since the crisis began have had significant effects on the value of the dollar. We document that these changes are comparable to the effects of conventional policy changes prior to the crisis. Is Asia Decoupling from the United States Again?

The recovery from the recent global financial crisis exhibited a decline in the synchronization of Asian output with the rest of the world. However, a simple model based on output gaps demonstrates that the decline in business cycle synchronization during the recovery from the global financial crisis was exceptionally steep by historical standards. We posit two potential reasons for this exceptionally steep decline: First, financial markets during this recovery improved from particularly distressed conditions relative to previous downturns.

Second, monetary policy during the recovery from the crisis was constrained in western economies by the zero bound, but less so in Asia. However, we find that the impact of reduced financial contagion actually goes modestly against our predictions. Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.

Labor Market Henry S. In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance UI benefits was extended to new historical highs in the United States, up to 99 weeks as of late into We exploit variation in the timing and size of UI benefit extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benefits up to 72 weeks during the much milder downturn in the early s.

Using monthly matched individual data from the U. Current Population Survey CPS for the periods andwe estimate the effects of UI extensions on unemployment transitions and duration. We rely on individual variation in benefit availability based on the duration of unemployment spells and the length of UI benefits available in the state and month, conditional on state economic conditions and individual characteristics.

We find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The effect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment the job finding rate. The magnitude of the overall effect on exits and duration is similar across the two episodes of benefit extensions.

Although the overall effect of UI extensions on exits from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term. Downward Nominal Wage Rigidities Bend the Phillips Curve Mary C. We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities.

This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.

Estimating Shadow-Rate Term Structure Models with Near-Zero Yields Jens H. Standard Gaussian affine dynamic term structure models do not rule out negative nominal interest rates—a conspicuous defect with yields near zero in many countries. Alternative shadow-rate models, which respect the nonlinearity at the zero lower bound, have been rarely used because of the extreme computational burden of their estimation. However, by valuing the call option on negative shadow yields, we provide the first estimates of a three-factor shadow-rate model.

We validate our option-based results by closely matching them using a simulation-based approach. We also show that the shadow short rate is sensitive to model fit and specification.

Regional inequality in China appears to be persistent and even growing in the last two decades. We study potential explanations for this phenomenon. After making adjustments for the difference in the cost of living across provinces, we find that some of the inequality in real wages could be attributed to differences in quality of labor, industry composition, labor supply elasticities, and geographical location of provinces.

These factors, taken together, explain about half of the cross-province real wage difference. Interestingly, we find that inter-province redistribution did not help offset regional inequality during our sample period. We also demonstrate that inter-province migration, while driven in part by levels and changes in wage differences across provinces, does not offset these differences. These results imply that cross-province labor market mobility in China is still limited, which contributes to the persistence of cross-province wage differences.

Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting forces of worker flows that underlie the modest cyclicality of the participation rate.

A novel analysis of history dependence in worker flows demonstrates that a large part of the contribution of the participation margin can be traced to cyclical fluctuations in the composition of the unemployed by labor market attachment. In particular, we analyze how, in light of these forces, the downstream firm sets the price of the product over its life cycle.

Economic determinants of the correlation structure across international equity markets

We focus on personal computers PCs and introduce two novel data sets that describe prices and sales in the industry. The analysis implies that rapid price declines are not caused by upstream innovation alone, but rather by the combination of upstream innovation and a competitive environment. We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors.

We allow for time-varying risk aversion via external habit formation and time-varying persistence and volatility in the stochastic process for rent growth, consistent with U.

Under fully-rational expectations, the model significantly underpredicts the volatility of the U. We demonstrate that the model can approximately match the volatility of the price-rent ratio in the data if near-rational agents continually update their estimates for the mean, persistence and volatility of fundamental rent growth using only recent data i. These two versions of the model can be distinguished by their predictions for the correlation between expected future returns on housing and the price-rent ratio.

Only the moving-average model predicts a positive correlation such that agents tend to expect high future returns when prices are high relative to fundamentalsa feature that is consistent with a wide variety of survey evidence from real estate and stock markets.

This paper proposes a simple method to structurally estimate a model over a period of time containing a regime shift. It then evaluates to which degree it is relevant to explicitly acknowledge the break in the estimation procedure. We apply our method on Swedish data, and estimate a DSGE model explicitly taking into account the monetary regime change infrom exchange rate targeting to inflation targeting. We show that ignoring the break in the estimation leads to spurious estimates of model parameters including parameters in both policy and non-policy economic relations.

Accounting for the regime change suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycle fluctuations and their transmission mechanism are significantly affected by the exchange rate regime.

We estimate a DSGE model where rare large shocks can occur, by replacing the commonly used Gaussian assumption with a Student-t distribution. Results from the Smets and Wouters model estimated on the usual set of macroeconomic time series over the period indicate that the Student-t specification is strongly favored by the data even when we allow for low-frequency variation in the volatility of the shocks, and that the estimated degrees of freedom are quite low for several shocks that drive U.

This result holds even if we exclude the Great Recession period from the sample. We also show that inference about low-frequency changes in volatility and in particular, inference about the magnitude of the Great Moderation is different once we allow for fat tails.

Medical-care expenditures have been rising rapidly, accounting for almost one-fifth of GDP in In this study, we assess the sources of the rising medical-care expenditures in the commercial sector. We employ a novel framework for decomposing expenditure growth into four components at the disease level: The decomposition shows that growth in prices and treated prevalence are the primary drivers of medical-care expenditure growth over the to period.

There was no growth in service utilization at the aggregate level over this period. Price and utilization growth were especially large for the treatment of malignant neoplasms. For many conditions, treated prevalence has shifted towards preventive treatment and away from treatment for late-stage illnesses. House Lock and Structural Unemployment Robert G. Because house lock is likely to extend job search in the local labour market for homeowners whose home value has declined, I focus on differences in unemployment duration between homeowners and renters across geographic areas differentiated by the severity of the decline in home prices.

The empirical analyses rely on microdata from the monthly Current Population Survey CPS files and an econometric method that enables the estimation of individual and aggregate covariate effects on unemployment durations using repeated cross-section data.

I do not uncover systematic evidence to support the house-lock hypothesis. We document the shift in the Beveridge curve in the U. We argue that a decline in quits, the relatively poor performance of the construction sector, and the extension of unemployment insurance benefits have largely driven this shift. We then introduce a method to estimate fitted Beveridge curves for other OECD countries for which data on vacancies and employment by job tenure are available.

We show that Portugal, Spain, and the U. Top Incomes, Rising Inequality, and Welfare Kevin J. We introduce permanently-shifting income shares into a growth model with two types of agents.

The model exactly replicates the U. Welfare effects depend on changes in the time pattern of agents' consumption relative to a counterfactual scenario that holds income shares and the transfer-output ratio constant. Short-run declines in workers' consumption are only partially offset by longer-term gains from higher transfers and more capital per worker.

The baseline simulation delivers large welfare gains for capital owners and nontrivial welfare losses for workers. We simulate the Federal Reserve second Large-Scale Asset Purchase program in a DSGE model with bond market segmentation estimated on U. GDP growth increases by less than a third of a percentage point and inflation barely changes relative to the absence of intervention. The key reasons behind our findings are small estimates for both the elasticity of the risk premium to the quantity of long-term debt and the degree of financial market segmentation.

Absent the commitment to keep the nominal interest rate at its lower bound for an extended period, the effects of asset purchase programs would be even smaller. The Economic Security Index: A New Measure for Research and Policy Analysis Jacob S. This paper presents the Economic Security Index ESIa new, more comprehensive measure of economic insecurity. By combining data from multiple surveys, we create an integrated measure of volatility in available household resources, accounting for fluctuations in income and out-of pocket medical expenses, as well as financial wealth sufficient to buffer against these shocks.

We find that insecurity has risen steadily since the mids for virtually all subgroups of Americans, albeit with cyclical ups and downs. We also find, however, that there is substantial disparity in the degree to which different groups are exposed to economic risk. As the ESI derives from a data-independent conceptual foundation, it can be measured using different data sources. We find that the degree and disparity by which insecurity has risen is robust across these sources.

We explore the role of foreclosure inventories in a model of housing supply. The foreclosure variable is necessary to account for the steep and sustained drop in new construction activity following the U. There is modest evidence that local banking conditions play a role in determining housing starts. Even with state-level foreclosures and banking variables in the model, there is a sizeable post residual common to all states.

We argue that, in addition to observable macro and local factors, housing starts in the Great Recession have been weighed down in part by aggregate uncertainty factors. A Quarterly, Utilization-Adjusted Series on Total Factor Productivity John G. This paper describes a real-time, quarterly growth-accounting database for the U.

The data on inputs, including capital, are used to produce a quarterly series on total factor productivity TFP. In addition, the dataset implements an adjustment for variations in factor utilization—labor effort and the workweek of capital. The utilization adjustment follows Basu, Fernald, and Kimball BFK, Data on quarterly utilization-adjusted TFP.

Productivity and Potential Output before, during, and after the Great Recession John G. This paper makes four points about the recent dynamics of productivity and potential output. First, after accelerating in the mids, labor and total-factor productivity growth slowed after the early to mid s. This slowdown preceded the Great Recession. Second, in contrast to some informal commentary, productivity performance during the Great Recession and early in the subsequent recovery was roughly in line with previous experience during deep recessions.

In particular, the evidence suggests substantial labor and capital hoarding. During the recovery, measures of factor utilization fairly quickly rebounded, and TFP and labor productivity returned to their anemic mids trends. Third, a plausible benchmark for the slower pace of underlying technology along with demographic assumptions from the Congressional Budget Office imply steady-state GDP growth of just over 2 percent per year--lower than most estimates.

Finally, during the recession and recovery, potential output grew even more slowly-- reflecting especially the effect of weak investment on growth in capital input. Half or more of the shortfall of actual output relative to pre-recession estimates of the potential trend reflects a reduction in potential.

Risk Aversion, Risk Premia, and the Labor Margin with Generalized Recursive Preferences Eric T. The present paper extends that analysis to the case of generalized recursive preferences, as in Epstein and Zin and Weilincluding multiplier preferences, as in Hansen and Sargent Understanding risk aversion for these preferences is especially important because they are the primary mechanism being used to bring macroeconomic models into closer agreement with asset pricing facts.

Measures of risk aversion commonly used in the literature—including traditional, fixed-labor measures and Cobb-Douglas composite-good measures—show no stable relationship to the equity premium in a standard macroeconomic model, while the closed-form expressions derived in this paper match the equity premium closely.

Relative Status and Well-Being: Suicide Deaths Mary C. We assess the importance of interpersonal income comparisons using data on suicide deaths. We estimate models of the suicide hazard using two independent data sets: Infrastructure Spending as Fiscal Stimulus: Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns.

Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.

Mussa Redux and Conditional PPP Paul R. Long half-lives of real exchange rates are often used as evidence against monetary sticky price models. In this study we show how exchange rate regimes alter the long-run dynamics and half-life of the real exchange rate, and we recast the classic defense of such models by Mussa from an argument based on short-run volatility to one based on long-run dynamics. The first key result is that the extremely persistent real exchange rate found commonly in post Bretton Woods data does not apply to the preceding fixed exchange rate period in our sample, where the half-live was roughly half as large.

The second key result explains the rise in persistence over time by identifying underlying shocks using a panel VECM model. Shocks to the nominal exchange rate induce more persistent real exchange rate responses compared to price shocks, and these shocks became more prevalent under a flexible exchange rate regime.

The same DSGE framework allows us to evaluate the welfare implications of alternative liberalization policies. Capital account and exchange rate liberalization would have allowed the Chinese central bank to better stabilize the external shocks experienced during the global financial crisis. International Channels of the Fed's Unconventional Monetary Policy Michael D.

We use dynamic term structure models to uncover to what extent signaling and portfolio balance channels caused these declines. For Australian and German yields, signaling effects were present but likely more moderate, and portfolio balance effects appear to have played a relatively larger role than in the U.

Portfolio balance effects were small for Japanese yields and signaling effects basically nonexistent. These findings about LSAP channels are consistent with predictions based on interest rate dynamics during normal times: Signaling effects tend to be large for countries with strong yield responses to conventional U. House Prices, Credit Growth, and Excess Volatility: Progress on the question of whether policymakers should respond directly to financial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity.

Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt that resemble the patterns observed in many industrial countries over the past decade. We show that the introduction of simple moving-average forecast rules for a subset of agents can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations.

Of these, we find that a debt-to-income type constraint is the most effective tool for dampening overall excess volatility in the model economy. While an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inflation. We show that to capture the empirical effects of uncertainty on the unemployment rate, it is crucial to study the interactions between search frictions and nominal rigidities.

To understand the mechanism through which uncertainty generates these macroeconomic effects, we incorporate search frictions and nominal rigidities in a DSGE model.

We show that an option-value channel that arises from search frictions interacts with a demand channel that arises from nominal rigidities, and such interactions magnify the effects of uncertainty to generate roughly 60 percent of the observed increase in unemployment following an uncertainty shock.

The Industry-Occupation Mix of U. I introduce a method that combines data from the U. Current Population Survey, Job Openings and Labor Turnover Survey, and state-level Job Vacancy Surveys to construct annual estimates of the number of job openings in the U. I present these estimates for The results reveal that: The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short-run focus: This argument is more problematic in the context of real exchange rate RER dynamics, which are very persistent.

In this paper we study RER dynamics in sticky-price models with capital accumulation. We analyze both a model with an economy-wide rental market for homogeneous capital, and an economy in which capital is sector specific.

We find that, in response to monetary shocks, capital increases the persistence and reduces the volatility of RERs. Nevertheless, versions of the multi-sector sticky-price model of Carvalho and Nechio augmented with capital accumulation can match the persistence and volatility of RERs seen in the data, irrespective of the type of capital. When comparing the implications of capital specificity, we find that, perhaps surprisingly, switching from economy-wide capital markets to sector-specific capital tends to decrease the persistence of RERs in response to monetary shocks.

Finally, we study how RER dynamics are affected by monetary policy and find that the source of interest rate persistence - policy inertia or persistent policy shocks - is key. Pricing Deflation Risk with U. Treasury Yields Jens H.

We use an arbitrage-free term structure model with spanned stochastic volatility to determine the value of the deflation protection option embedded in Treasury inflation protected securities TIPS.

economic determinants of the correlation structure across international equity markets

The model accurately prices the deflation protection option prior to the financial crisis when its value was near zero; at the peak of the crisis in late when deflationary concerns spiked sharply; and in the post-crisis period. Duringthe average value of this option at the five-year maturity was 41 basis points on a par-yield basis. The option value is shown to be closely linked to overall market uncertainty as measured by the VIX, especially during and after the financial crisis.

The Response of Interest Rates to U. Quantitative Easing Jens H. We analyze the declines in government bond yields that followed the announcements of plans by the Federal Reserve and the Bank of England to buy longer-term government debt. Using empirical dynamic term structure models, we decompose these declines into changes in expectations about future monetary policy and changes in term premiums.

We find that declines in U. Treasury yields mainly reflected lower policy expectations, while declines in U. Thus, the relative importance of the signaling and portfolio balance channels of quantitative easing may depend on market institutional structures and central bank communications policies. We take the more general view that the null model is only approximative and in some cases it may be altogether unavailable. As a consequence, one cannot derive the usual analytic expressions nor resample from the null model as is usually done when bootstrap methods are used.

The paper derives methods to construct approximate rectangular regions for simultaneous probability coverage which correct for serial correlation. The techniques appear to work well in simulations and in an application to the Greenbook path forecasts of growth and inflation. Roads to Prosperity or Bridges to Nowhere? We examine the dynamic macroeconomic effects of public infrastructure investment both theoretically and empirically, using a novel data set we compiled on various highway spending measures.

Relying on the institutional design of federal grant distributions among states, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal highway funding has a positive effect on local GDP both on impact and after 6 to 8 years, with the impact effect coming from shocks during local recessions.

However, we find no permanent effect as of 10 years after the shock. Similar impulse responses are found in a number of other macroeconomic variables. The transmission channel for these responses appears to be through initial funding leading to building, over several years, of public highway capital which then temporarily boosts private sector productivity and local demand.

To help interpret these findings, we develop an open economy New Keynesian model with productive public capital in which regions are part of a monetary and fiscal union.

We show that the presence of productive public capital in this model can yield impulse responses with the same qualitative pattern that we find empirically.

Appendices to Working Paper Teacher Training and Outcomes in High School Economics Classes Robert G. Using data from a survey of California high school economics classes, we assess the effects of teacher characteristics on student achievement.

We estimate value-added models of outcomes on multiple choice and essay exams, with matched classroom pairs for each teacher enabling random-effects and fixed-effects estimation. The results show a substantial impact of specialized teacher experience and college-level coursework in economics.

Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates Eric T. The federal funds rate has been at the zero lower bound for over four years, since December According to many macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy.

However, standard macroeconomic theory also implies that private-sector decisions depend on the entire path of expected future short term interest rates, not just the current level of the overnight rate. Thus, interest rates with a year or more to maturity are arguably more relevant for the economy, and it is unclear to what extent those yields have been constrained.

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