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Creator: Miller, Preston J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 266 Abstract:
Trade protection remains a prominent feature of the current world economy and likely has significant effects on industries and macroeconomies. In this paper a particular type of policy, price supports, is analyzed in a two-country, dynamic, general equilibrium model. This model brings new perspectives to the analysis in that it is monetary and has labor mobility within countries between the traded-goods and non–traded-goods sectors. It is found that: (1) The introduction of price supports in an economy benefits only the agents currently working in the traded-goods sector. (2) Cooperation among countries in setting policies results in a higher level of price supports than does noncooperation. (3) Price-support policies can importantly affect the transmission of monetary policy effects, introducing permanent changes in real variables where there were none before and even reversing the signs of changes in some variables.
Creator: Chin, Daniel M., Geweke, John, and Miller, Preston J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 267 Abstract:
This paper presents a new method for predicting turning points. The paper formally defines a turning point; develops a probit model for estimating the probability of a turning point; and then examines both the in-sample and out-of-sample forecasting performance of the model. The model performs better than some other methods for predicting turning points.
Creator: Miller, Preston J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 193 Abstract:
The welfare-maximizing income tax structure, rate of money creation, and amounts of intergenerational transfers are jointly determined for given rates of government consumption. When government consumption is zero, it is found for the parameter values examined that the income tax structure is progressive, the rate of money change is negative, and positive transfers are made to the old. As government consumption increases, the tax structure’s progressivity declines and turns increasingly regressive, the rate of money change rises, and transfers decrease. It is found that the bulk of the increase in government consumption is optimally financed by a cut in transfers.
Creator: Chin, Daniel M. and Miller, Preston J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 194 Abstract:
In this study we contrast fixed and floating exchange rate regimes in a dynamic general equilibrium model. We find that the fundamental difference in the regimes is in the courses they imply for monetary policies. Because of policy coordination requirements, a tighter monetary policy needed to maintain a fixed exchange rate may necessitate a tightening in budget policy as well. We show that under some initial conditions voters or a social planner will favor one regime, but under other conditions they will favor the other. However, the choices of voters and a social planner are almost diametrically opposed.
Mot-clé: Monetary policy, Dynamic general equilibrium, and Exchange rate regimes Assujettir: F41 - Open Economy Macroeconomics, C60 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling: General, and E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 494 Abstract:
This paper investigates the macroeconomic and welfare effects of a particular public finance decision. That decision was to use debt rather than current taxation to finance deposit insurance payments related to the savings and loan debacle. We find that this decision could have significantly raised real interest rates and affected welfare. The analysis is conducted in a dynamic, open-economy, monetary general equilibrium model in which parameters are set based on empirical observations.
Mot-clé: Savings and loan, Welfare, Real interest rates, Deposit insurance, Government debt, Public finance, Taxation, and S & L Assujettir: H63 - National Debt; Debt Management; Sovereign Debt and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Miller, Preston J. and Todd, Richard M. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 154 Abstract:
We present a 2-country model with heterogeneous agents in which changes in a country’s monetary policy affect real interest rates, relative prices of traded and nontraded goods and real exchange rates. Nontransitory real effects of monetary policy stem solely from a friction (country-specific reserve requirements) that generates separate demands for a country’s money and bonds. Without violating the classical assumptions of individual rationality and flexible prices, the model’s implications seem qualitatively in accord with the U.S. experience of the 1980s: a monetary policy tightening leading to a rise in the real interest rate and to an initial rise in the real value of the dollar which is subsequently reversed. In the model a monetary policy change leads to different welfare effects for agents born at different times, living in different countries, or participating on different sides of a market. The welfare of some agents can be affected more by relative price changes than by real interest rate changes.
Mot-clé: Open economy, Nontraded goods, General equilibrium, Legal restrictions, and Monetary policy Assujettir: F41 - Open Economy Macroeconomics and E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 481 Abstract:
This paper investigates the effects of changes in a country's monetary policies on its economy and the welfare of its citizens and those of other countries. Each country is populated by two-period lived overlapping agents who reside in either a home service sector or a world-traded good sector. Policy effects are transmitted through changes in the real interest rate, relative prices, and price levels. Welfare effects are sometimes dominated by relative price movements and can thus be opposite of those found in one-good models. Simulation of dynamic paths also reveals that welfare effects for some types of agents reverse between those born in immediate post-shock periods and those born later.
Mot-clé: Exchange rates, Real interest rates, Monetary policy, Prices, and Relative prices Assujettir: E31 - Price Level; Inflation; Deflation, F31 - Foreign Exchange, and E52 - Monetary Policy
Creator: Miller, Preston J. and Roberds, William Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 120 Abstract:
Using a simple model, we show why previous empirical studies of budget policy effects are flawed. Due to an identification problem, those studies’ findings can be shown to be consistent with either policies mattering or not.
Creator: Miller, Preston J. and Roberds, William Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 418 Mot-clé: Structural model, Deficit, Real interest rates, Budget, and Budget deficit Assujettir: H61 - National Budget; Budget Systems and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Miller, Preston J. and Roberds, William Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 109 Abstract:
Doan, Litterman, and Sims (DLS) have suggested using conditional forecasts to do policy analysis with Bayesian vector autoregression (BVAR) models. Their method seems to violate the Lucas critique, which implies that coefficients of a BVAR model will change when there is a change in policy rules. In this paper we construct a BVAR macro model and attempt to determine whether the Lucas critique is important quantitatively. We find evidence following two candidate policy rule changes of significant coefficient instability and of a deterioration in the performance of the DLS method.
Mot-clé: Coefficient instability, Bayesian vector autoregression, and Conditional forecasts