Creator: Greenwood, Jeremy, 1953- and Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 363 Abstract:
A two country overlapping generations model is constructed, in which financial intermediation arises endogenously as an incentive compatible means of economizing on monitoring costs. Because of the existence of transaction costs, money markets in the two countries are segmented and investors have differential access to international credit markets. The model is used to generate predictions concerning the role of international intermediation in economic development, and to examine the nature of business cycle phenomena across alternative exchange rate regimes. Disturbances are propagated by a credit allocation mechanism, which also lends a novel flavor to the model's long run properties.
Keyword: Generations, Exchange rate, Business cycles, Economic models, and Financial policy Subject (JEL): E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 355 Abstract:
Forecasts are routinely revised, and these revisions are often the subject of informal analysis and discussion. This paper argues 1) that forecast revisions are analyzed because they help forecasters and forecast users to evaluate forecasts and forecasting procedures, and 2) that these analyses can be sharpened by using the forecasting model to systematically express its forecast revision as the sum of components identified with specific data revisions and forecast errors. An algorithm for this purpose is explained and illustrated.
Keyword: Forecasting, Forecast revisions, Innovation, and Data revisions Subject (JEL): E17 - General aggregative models - Forecasting and simulation
Creator: Uhlig, Harald, 1961- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 342 Abstract:
[Please note that the following Greek lettering is improperly transcribed.] If [0,1] is a measure space of agents and X---- a collection of pairwise uncorrelated random variables with common finite mean U and variance a , one would like to establish a law of large numbers () Xdl = U. In this paper we propose to interpret () as a Pettis integral. Using the corresponding Riemann-type version of this integral, we establish (*) and interpret it as an L2-law of large numbers. Intuitively, the main idea is to integrate before drawing an W, thus avoiding well-know measurability problems. We discuss distributional properties of i.i.d. random shocks across the population. We given examples for the economic interpretability of our definition. Finally, we establish a vector-valued version of the law of large numbers for economies.
Keyword: Random variable, Khinchines law of large numbers, L2 law of large numbers, Riemann integral, Pettis integral, and Large numbers Subject (JEL): C10 - Econometric and statistical methods : General - General
Creator: Aiyagari, S. Rao. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 319 Abstract:
We consider the existence of deterministically cycling steady state equilibria in a class of stationary overlapping generations models with sufficiently long (but, finite) lived agents. Preferences are of the discounted sum of utilities type with a fixed discount rate. Utility functions with large coefficients of relative risk aversion which generate strong income effects (relative to substitution effects) and backward bending offer curves are permitted. Lifetime endowment patterns are quite arbitrary. We show that if agents have a positive discount rate, then as agents1 lifespans get large, short period non-monetary cycles will disappear. Further, constant monetary steady states do not exist and therefore, neither do stationary monetary cycles of any period. We then consider the case where agents have a negative discount rate and show that there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no matter how long agents live.
Keyword: Longevity, Business cycles, Intertemporal choice, and Monetary theory Subject (JEL): D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving and N10 - Macroeconomics and monetary economics ; Growth and fluctuations - General, international, or comparative
Creator: Doan, Thomas., Litterman, Robert B., and Sims, Christopher A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 243 Abstract:
This paper develops a forecasting procedure based on a Bayesian method for estimating vector autoregressions. The procedure is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations. Although cross-variables responses are damped by the prior, considerable interaction among the variables is shown to be captured by the estimates. We provide unconditional forecasts as of 1982:12 and 1963:3* We also describe how a model such as this can be used to make conditional projections and to analyse policy alternatives. As an example, we analyze a Congressional Budget Office forecast made in 1982:12. While no automatic causal interpretations arise from models like ours, they provide a detailed characterization of the dynamic statistical interdependence of a set of economic variables, which may help in evaluating causal hypotheses, without containing any such hypotheses themselves.
Keyword: Bayesian methods, Forecasting, and Macroeconomics Subject (JEL): C11 - Econometric and statistical methods : General - Bayesian analysis and E27 - Macroeconomics : Consumption, saving, production, employment, and investment - Forecasting and simulation
Creator: Smith, Bruce D., d. 2002. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 230 Abstract:
An overlapping generations model is developed that contains labor markets in which adverse selection problems arise. As a response to these problems, quantity rationing of labor occurs. In addition, the model is capable of generating (a) random employment and prices despite the absence of underlying uncertainty in equilibrium; (b) a statistical (nondegenerate) Phillips curve; (c) procyclical movements in productivity; (d) correlations between aggregate demand and unemployment (and output); (e) an absence of correlation between unemployment (employment) and real wages. In addition, the Phillips curve obtained typically has the "correct" slope. Finally, the model reconciles the theoretical importance and observed unimportance of intertemporal substitution effects, and explains why price level stability may be a poor policy objective.
Keyword: Money, Prices, Unemployment, Productivity, Labor, and Philips curve Subject (JEL): E12 - General aggregative models - Keynes ; Keynesian ; Post-Keynesian, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Sargent, Thomas J. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 211 Abstract:
In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that an attempt to finance the proposal through earnings on the central bank’s portfolio either gives rise to an equilibrium with a zero nominal interest rate or fails to give rise to an equilibrium.
Keyword: Interest rates, General equilibrium models, and Reserves Subject (JEL): D58 - General equilibrium and disequilibrium - Computable and other applied general equilibrium models and E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates