Creator: Doan, Thomas, Litterman, Robert B., and Sims, Christopher A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) 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: Forecasting, Macroeconomics, and Bayesian methods Subject (JEL): E27 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications and C11 - Bayesian Analysis: General
Creator: Boyd, John H. and Graham, Stanley L. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 398 Abstract:
This study estimates the effects of allowing bank holding companies (BHCs) to enter several lines of financial business not now permitted. A simulation technique is used to estimate the risk and return of hypothetical financial corporations after merger between a BHC and a large firm in each of these industries: securities, real estate, life insurance, property and casualty insurance, and insurance agencies. The study concludes that a merger between a BHC and a life insurance company may decrease the probability of bankruptcy for the merged firm relative to the BHC alone. This result does not hold true, however, for BHC mergers with firms in the other industries. In particular, BHC mergers with securities or real estate firms are found to increase the probability of bankruptcy.
Keyword: Merger, Bank holding companies, Insurance, Real estate, Bankruptcy, Securities, Risk, and Bank holding company Subject (JEL): G28 - Financial Institutions and Services: Government Policy and Regulation, G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Christiano, Lawrence J. and Eichenbaum, Martin S. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 478 Description:
This technical appendix supports "Liquidity Effects, Monetary Policy, and the Business Cycle" in Journal of Money, Credit and Banking (November 1995, Vol. 27, No. 4, Pt. 1, pp. 1113-1136), https://doi.org/10.2307/2077793.
Keyword: Appendix, Computations, MATLAB, Monetary policy, Business cycles, Liquidity, and Mathematical computations Subject (JEL): E32 - Business Fluctuations; Cycles, Y10 - Data: Tables and Charts, and E52 - Monetary Policy
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.
Keyword: Exchange rates, Real interest rates, Monetary policy, Prices, and Relative prices Subject (JEL): E31 - Price Level; Inflation; Deflation, F31 - Foreign Exchange, and E52 - Monetary Policy
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.
Keyword: Savings and loan, Welfare, Real interest rates, Deposit insurance, Government debt, Public finance, Taxation, and S & L Subject (JEL): H63 - National Debt; Debt Management; Sovereign Debt and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Backus, David, Kehoe, Patrick J., and Kydland, Finn E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 498 Keyword: Harberger-Laursen-Metzler effect, Net exports , Balance of trade, Terms of trade, J curve, and Marshall-Lerner condition Subject (JEL): F41 - Open Economy Macroeconomics, F11 - Neoclassical Models of Trade, and F30 - International Finance: General
Creator: Green, Edward J. and Oh, Soo-Nam Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 499 Abstract:
In this paper we explain why markets in noncontingent debt securities might be a stable form of market organization for intermediation to households. Efficient-contract allocation might be supported by these markets because households' relationships with their intermediaries do not exactly parallel the explicit form of the noncontingent contracts that they explicitly sign with one another. Also we show that the efficient-contract model can be distinguished from alternative models within the time-series framework that has been widely used to study households' consumption patterns.
Paper prepared for the 'Debt and Credit' Conference at the LSE.
Keyword: Households, Credit contracts, Consumption, Credit, and Debt securities Subject (JEL): G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages, C22 - Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes, and D11 - Consumer Economics: Theory
Creator: Green, Edward J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 501 Abstract:
I consider two theories of the determination of political institutions. One of these theories stresses effects of changes in the balance of military power between the ruler and subjects on the distribution of property rights which the political system enforces. The other theory emphasizes the effect of changing informational constraints which require institutional changes to be made in order to maintain efficiency. I examine how each of these theories would apply to explaining the development of parliamentary government in thirteenth-century England. My general conclusion is that both theories are required to understand fully the process by which liberal political institutions emerge.
Keyword: History, Government, England, and Great Britain Subject (JEL): N43 - Economic History: Government, War, Law, International Relations, and Regulation: Europe: Pre-1913 and H11 - Structure, Scope, and Performance of Government
Creator: Boyd, John H., Daley, Lane A., 1953-, and Runkle, David Edward Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 515 Abstract:
This paper examines the seasonal pattern of accruals for loan-loss provisions and chargeoffs chosen by bank managers. Using the existing literature on intra-year discretionary accruals, knowledge of the incentive systems used to evaluate bank managers' performance, and various regulatory characteristics, we predict that accruals for provisions and chargeoffs will cluster in the fourth quarter of each year. We examine quarterly data for 105 large bank holding companies from the first quarter of 1980 through the fourth quarter of 1990. Our results indicate that: (1) provisions and chargeoffs are clustered in the fourth quarter, (2) this clustering is not related to the level of business activity of the banks, (3) the proximity of a bank's actual capital to its regulatory capital requirement does not affect this clustering, and (4) current provisions are affected both by current chargeoffs and by expectations about future chargeoffs. To examine whether the systematic characteristics of these loan-loss provision and chargeoff decisions are understood by users, we also estimate a quarterly equity valuation model in which quarterly provisions should be differentially weighted to reflect their seasonal characteristics. We find strong evidence to indicate that equity prices behave as if the market participants take these seasonal properties into account.
Keyword: Bank lending, Loan-loss provision, Seasonality, Loans, Loan losses, Charge-off, and Banks Subject (JEL): G14 - Information and Market Efficiency; Event Studies; Insider Trading and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages