Creator: King, Robert G. (Robert Graham), Wallace, Neil, and Weber, Warren E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 307 Abstract:
This paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals. This is demonstrated in the context of a two currency, one good model, with three agent types and cash-in-advance constraints. A crucial feature is that the type i agents, for i=l, 2, must satisfy a cash—in-advance constraint by holding currency i, while type 3 agents can satisfy it by holding either currency. It is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist.
Keyword: Foreign exchange rates, Currencies, and Macroeconomics Subject (JEL): F31 - Foreign Exchange and E00 - Macroeconomics and Monetary Economics: General
Creator: Sargent, Thomas J. and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 214 Keyword: Quantity theory of money, Seignorage, Commodities, Symmetallism, Private issue inside money, and Bimetallism Subject (JEL): E52 - Monetary Policy and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Bryant, John B. and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 189 Keyword: Prohibition, Government debt, Rate of return dominance, and Private currency Subject (JEL): E40 - Money and Interest Rates: General and E52 - Monetary Policy
Creator: Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 024 Abstract:
In "Liquidity Preference as Behavior Towards Risk," Tobin suggests that risk aversion and expected utility maximization can provide a rigorous foundation for an equilibrium demand for money. In Tobin's model, money plays a risk reducing role in individual portfolios. This note considers whether a general equilibrium stochastic model can produce equilibrium yield distributions that allow money to play that role if money does not appear directly as an argument in the utility or production functions of the economy. The model examined, a stochastic production variant of Samuelson's model of overlapping generations, cannot produce such yield distributions.
Keyword: Risk aversion, Stochastic, and Monetary economy Subject (JEL): E41 - Demand for Money, C51 - Model Construction and Estimation, and G11 - Portfolio Choice; Investment Decisions
Creator: Muench, Thomas J., Rolnick, Arthur J., 1944-, Wallace, Neil, and Weiler, William Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 019 Abstract:
Prediction interval tests are applied to the reduced forms of two quarterly models of the U.S. (the "old" FRB-MIT model and the Michigan model). The results illustrate the range of tests one can perform on an estimated simultaneous equation model. In particular, the tests determine whether ex post forecast errors can be attributed to structural deficiencies of the models. The paper examines confidence regions and other aspects of forecast distributions-comparisons between mean forecasts and nonstochastic forecasts, comparisons between, forecast variances from multiperiod endogenous simulations and those from one period simulations, and comparisons between forecast variances and residual variances.
Keyword: Michigan quarterly model, FRB-MIT quarterly model, and Monte Carlo experiment Subject (JEL): C53 - Forecasting Models; Simulation Methods, C52 - Model Evaluation, Validation, and Selection, and C30 - Multiple or Simultaneous Equation Models; Multiple Variables: General