Other affiliations: Federal Reserve System
Bio: Peter Hooper is an academic researcher from Deutsche Bank. The author has contributed to research in topics: Exchange rate & Monetary policy. The author has an hindex of 22, co-authored 59 publications receiving 3642 citations. Previous affiliations of Peter Hooper include Federal Reserve System.
Papers published on a yearly basis
TL;DR: In this article, the theoretical impact of exchange risk on both equilibrium prices and quantities is analyzed for several empirical cases of 1965-1975 U.S. and German trade and it is found that exchange rate uncertainty has had a significant impact on prices but no significant effect on the volume of trade.
Abstract: By specifying a model of differential risk-bearing by import demand and export supply sides of the market for traded goods, the theoretical impact of exchange risk on both equilibrium prices and quantities is analyzed. For several empirical cases of 1965–1975 U.S. and German trade it is found that exchange rate uncertainty has had a significant impact on prices but no significant effect on the volume of trade. These price effects support previous survey results on the currency denomination of export contracts, namely that with the exception of some U.S. imports, most trade is largely denominated in the exporter's currency.
01 Sep 2000
TL;DR: This article reported the results of a project to estimate and test the stability properties of conventional equations relating real imports and exports of goods and services for the G-7 countries to their incomes and relative prices.
Abstract: This paper reports the results of a project to estimate and test the stability properties of conventional equations relating real imports and exports of goods and services for the G-7 countries to their incomes and relative prices. We begin by estimating cointegration vectors and the error-correction formulations. We then test the stability of these equations using Chow and Kalman-Filter tests. The evidence suggests three findings. First, conventional trade equations and elasticities are stable enough, in most cases, to perform adequately in forecasting and policy simulations. Equations for German trade, as well as equations for French and Italian exports, are an exception. Second, income elasticities of U.S. trade have not been shifting in a direction that will tend to ease the trend toward deterioration in the U.S. trade position. The income-elasticity gap for Japan found in earlier studies was not confirmed in this analysis. Finally, the price channel is weak, if not wholly ineffective, in the case of continental European countries.
TL;DR: This article explored the link between financial conditions and economic activity and found that financial conditions had a tighter link with future economic activity than existing indexes, although some of this undoubtedly reflects the fact that they selected the variables partly based on their observation of the recent financial crisis.
Abstract: This report explores the link between financial conditions and economic activity. We first review existing measures, including both single indicators and composite financial conditions indexes (FCIs). We then build a new FCI that features three key innovations. First, besides interest rates and asset prices, it includes a broad range of quantitative and survey-based indicators. Second, our use of unbalanced panel estimation techniques results in a longer time series (back to 1970) than available for other indexes. Third, we control for past GDP growth and inflation and thus focus on the predictive power of financial conditions for future economic activity. During most of the past two decades for which comparisons are possible, including the last five years, our FCI shows a tighter link with future economic activity than existing indexes, although some of this undoubtedly reflects the fact that we selected the variables partly based on our observation of the recent financial crisis. As of the end of 2009, our FCI showed financial conditions at somewhat worse-than-normal levels. The main reason is that various quantitative credit measures (especially issuance of asset backed securities) remained unusually weak for an economy that had resumed expanding. Thus, our analysis is consistent with an ongoing modest drag from financial conditions on economic growth in 2010.
TL;DR: In this paper, a model of exchange rate determination that extends the Dornbusch-Frankel model to allow for large and sustained changes in real exchange rates was developed. But the model was not applied to the current account.
Abstract: This paper develops a model of exchange rate determination that extends the Dornbusch-Frankel model to allow for large and sustained changes in real exchange rates. Real exchange rate changes are related to movements in the current account, both through changes in expectations about the long-run equilibrium real exchange rate and through changes in the risk premium. The model is estimated empirically for the dollar's weighted average exchange rate over the flexible rate period of the 1970s. The results indicate that innovations to the current account have been a significant determinant of the exchange rate, predominantly through changes in expectations.
01 Jan 1993
TL;DR: In this paper, the authors make a move towards meeting the need for a combination of theoretical and empirical evaluation of alternative policy regimes by using stochastic simulation, an evaluation procedure increasingly employed at the frontier of economic analysis.
Abstract: Economists have long debated the theoretical merits - for an individual nation and for a multi-nation world economy - of alternative approaches to the conduct of economic policy. Yet theory alone cannot resolve the important issues at stake. Only after the robustness of policy regimes has been examined with empirical evidence will policymakers and economists be able to reach more of a consensus. This book makes a move towards meeting the need for a combination of theoretical and empirical evaluation of alternative policy regimes. Many parts of the book use the analytical techniques of stochastic simulation, an evaluation procedure increasingly employed at the frontier of economic analysis. This book is another installment in a continuing worldwide research project, sponsored by Brookings since the mid-1980s, to improve empirical knowledge about the interdependence of national economics. Previous volumes include "Macroeconomic Policies in an Interdependent World", "External Deficits and the Dollar: the Pit and the Pendulum", and "Empirical Macroeconomics for Interdependent Economies".
TL;DR: In this article, the authors examine how recent econometric policy evaluation research on monetary policy rules can be applied in a practical policymaking environment, and the discussion centers around a hypothetical but representative policy rule much like that advocated in recent research.
Abstract: This paper examines how recent econometric policy evaluation research on monetary policy rules can be applied in a practical policymaking environment. According to this research, good policy rules typically call for changes in the federal funds rate in response to changes in the price level or changes in real income. An objective of the paper is to preserve the concept of such a policy rule in a policy environment where it is practically impossible to follow mechanically any particular algebraic formula that describes the policy rule. The discussion centers around a hypothetical but representative policy rule much like that advocated in recent research. This rule closely approximates Federal Reserve policy during the past several years. Two case studies-German unification and the 1990 oil-price shock-that had a bearing on the operation of monetary policy in recent years are used to illustrate how such a policy rule might work in practice.
TL;DR: The authors compared the performance of various structural and time series exchange rate models, and found that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollar/pound, dollar/mark, dollar /yen and trade-weighted dollar exchange rates.
Abstract: This study compares the out-of-sample forecasting accuracy of various structural and time series exchange rate models. We find that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollar/pound, dollar/mark, dollar/yen and trade-weighted dollar exchange rates. The candidate structural models include the flexible-price (Frenkel-Bilson) and sticky-price (Dornbusch-Frankel) monetary models, and a sticky-price model which incorporates the current account (Hooper-Morton). The structural models perform poorly despite the fact that we base their forecasts on actual realized values of future explanatory variables.
TL;DR: This article developed a Ricardian trade model that incorporates realistic geographic features into general equilibrium and delivered simple structural equations for bilateral trade with parameters relating to absolute advantage, comparative advantage, and geographic barriers.
Abstract: We develop a Ricardian trade model that incorporates realistic geographic features into general equilibrium It delivers simple structural equations for bilateral trade with parameters relating to absolute advantage, to comparative advantage (promoting trade), and to geographic barriers (resisting it) We estimate the parameters with data on bilateral trade in manufactures, prices, and geography from 19 OECD countries in 1990 We use the model to explore various issues such as the gains from trade, the role of trade in spreading the benefits of new technology, and the effects of tariff reduction
TL;DR: A number of recent studies have weighed in with fairly persuasive evidence that real exchange rates (nominal exchange rates adjusted for differences in national price levels) tend toward purchasing power parity in the very long run as discussed by the authors.
Abstract: FIRST ARTICULATED by scholars of the ISalamanca school in sixteenth century Spain,1 purchasing power parity (PPP) is the disarmingly simple empirical proposition that, once converted to a common currency, national price levels should be equal. The basic idea is that if goods market arbitrage enforces broad parity in prices across a sufficient range of individual goods (the law of one price), then there should also be a high correlation in aggregate price levels. While few empirically literate economists take PPP seriously as a short-term proposition, most instinctively believe in some variant of purchasing power parity as an anchor for long-run real exchange rates. Warm, fuzzy feelings about PPP are not, of course, a substitute for hard evidence. There is today an enormous and evergrowing empirical literature on PPP, one that has arrived at a surprising degree of consensus on a couple of basic facts. First, at long last, a number of recent studies have weighed in with fairly persuasive evidence that real exchange rates (nominal exchange rates adjusted for differences in national price levels) tend toward purchasing power parity in the very long run. Consensus estimates suggest, however, that the speed of convergence to PPP is extremely slow; deviations appear to damp out at a rate of roughly 15 percent per year. Second, short-run deviations from PPP are large and volatile. Indeed, the one-month conditional volatility of real exchange rates (the volatility of deviations from PPP) is of the same order of magnitude as the conditional volatility of nominal exchange rates. Price differential volatility is surprisingly large even when one confines attention to relatively homogenous classes of highly traded goods. The purchasing power parity puzzle then is this: How can one reconcile the enormous short-term volatility of real exchange rates with the extremely slow rate at which shocks appear to damp out? Most explanations of short-term exchange rate volatility point to financial factors such as changes in portfolio preferences, short-term asset price bubbles, and monetary shocks (see, for example, Maurice Obstfeld and Rogoff forthcoming). Such shocks can have substantial effects on the real economy in the presence of sticky nominal wages and prices. I See Lawrence H. Officer (1982, ch. 3) for an extensive discussion of the origins of PPP theory; see also Dornbusch (1987).
TL;DR: In this paper, a simple quantitative model of output, interest rate and inflation determination in the United States, and uses it to evaluate alternative rules by which the Fed may set interest rates.
Abstract: This paper considers a simple quantitative model of output, interest rate and inflation determination in the United States, and uses it to evaluate alternative rules by which the Fed may set interest rates. The model is derived from optimizing behavior under rational expectations, both on the part of the purchasers of goods (who choose quantities to purchase given the expected path of real interest rates), and upon that of the sellers of goods (who set prices on the basis of the expected evolution of demand). Numerical parameter values are obtained in part by seeking to match the actual responses of the economy to a monetary shock to the responses predicted by the model. The resulting model matches the empirical responses quite well and, once due account is taken of its structural disturbances, can account for our data nearly as well as an unrestricted VAR. The monetary policy rule that most reduces inflation variability (and is best on this account) requires very variable interest rates, which in turn is...