Empirical exchange rate models of the seventies: Do they fit out of sample?

Why do growth rates differ? This paper surveys the recent empirical literature on economic growth, starting with a discussion of stylized facts, data problems, and statistical methods. Six research questions are emphasized, drawing on growth and convergence research. In answering these questions, the paper argues that efficiency has grown at different rates across countries, casting doubt on neoclassical models in which technology is a public good. The latter half of the paper rounds up a variety of findings before providing answers to all six questions, including a short summary of how differences in growth rates arise.

The New Growth Evidence

Part 1 Empirical evidence on money and output: introduction some basic correlations estimating the effect of money on output summary. Part 2 Money in a general equilibrium framework: introduction the Tobin effect money in the utility function summary appendix - the MIU approximation problems. Part 3 Money and transactions: introduction shopping-time models cash-in-advance models other approaches summary appendix - the CIA approximation problems. Part 4 Money and public finance: introduction bugdet accounting equilibrium seigniorage optimal taxation and seigniorage Friedman's rule revisited nonindexed tax systems problems. Part 5 Money and output in the short run: introduction flexible prices sticky prices and wages a framework for monetary analysis inflation persistence summary appendix problems. Part 6 Money and the open economy: introduction the Obstfeld-Rogoff two-country model policy coordination the small open economy summary appendix problems. Part 7 The credit channel of monetary policy: introduction imperfect information in credit markets macroeconomic implications does credit matter? summary. Part 8 Discretionary policy and time inconsistency: introduction inflation under discretionary policy solutions to the inflation bias is the inflation bias important? do central banking institutions matter? lessons and conclusions problems. Part 9 Monetary-policy operating procedures: introduction from instruments to goals the instrument-choice problem operating procedures and policy measures problems. Part 10 Interest rates and monetary policy: introduction interest-rate rule and the price level interest rate policies in general equilibrium models the term structure of interest rates a model for policy analysis summary problems.

Monetary Theory and Policy

Econometric policy evaluation: A critique

Survey data provide a measure of exchange rate expectations that is superior to the commonly-used forward exchange rate in the respect that it does notinclude a risk premium. We use survey data and the technique of bootstrapping to test a number of propositions of interest. We are able to reject static or "randomwalk" expectations for both nominal and real exchange rates. Expected depreciation is large in magnitude. There is even statistically significant unconditional bias: during the 1981-85 "strong dollar period" the market persistently over estimated depreciation of the dollar. Expected depreciation is also variable, contrary to some recent claims. The expected future spot rate can be viewed as inelastic with respect to the contemporaneous spot rate, in that it also puts weight on other variables: the lagged expected spot rate (as in adaptive expectations), the lagged actual spot rate (distributed lag expectations), or a long-run equilibrium rate (regressive expectations). In one irnportant case, the relatively low weight that investors' expectations put on the contemporaneous spot rate constitutes a statistical rejection of rational expectations: we find that prediction errors are correlated with expected depreciation, so that investors would do better if they always reduced fractionally the magnitude of expected depreciation. This is the same result found by Bilson, Fama, and many others, except that it can no longer be attributed to a risk premium.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w1672.pdf?abstractid=228044&mirid=1&type=2

Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations

Cross-country regressions explaining output growth often obtain a negative effect from. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis-specifications, both analytically and empirically. In particular, for most G-7 countries, annual time series of inflation and the log-level of output are cointegrated, thus rejecting the existence of a long-run relation between output growth and inflation. Typically, output and inflation are positively related in these cointegrating relationships: a price markup model helps to interpret this surprising feature.

/pdf/output-and-inflation-in-the-long-run-c2rb92ff4t.pdf

Output and inflation in the long run

https://www.nber.org/system/files/working_papers/w17350/w17350.pdf

ABS Inflows to the United States and the Global Financial Crisis

The effects of population aging are examined with a theoretical model and simulations of MULTIMOD. An older population will consume more of aggregate disposable income, require higher government expenditure, and decrease labor supply. These effects should raise real interest rates and lower capital stock and output. Effects on current balances will depend on the relative speed and extent of aging. Simulations of projected demographic changes suggest that by 2025, real interest rates would be increased in all countries, and net foreign assets would be increased in the United States and decreased in the Federal Republic of Germany and Japan.

/pdf/macroeconomic-effects-of-projected-population-aging-in-33z07279nc.pdf

Macroeconomic Effects of Projected Population Aging in Industrial Countries

https://www.federalreserve.gov/pubs/ifdp/1983/227/ifdp227.pdf

Ralph W. Tryon

Papers

Output and inflation in the long run

ABS Inflows to the United States and the Global Financial Crisis

Macroeconomic Effects of Projected Population Aging in Industrial Countries

An analysis of external debt positions of eight developing countries through 1990

Testing for rational expectations in foreign exchange markets