Showing papers by "Federal Reserve System published in 1981"
TL;DR: In this article, it is shown that if the model selection criteria of H. Akaike (1974), T. Amemiya (1980), C.L. Mallows (1973) or E. Parzen (1979) are used to choose m 0 in (1), then in the limit the probability of choosing m 0 too large is at least 0.2883.
262 citations
TL;DR: In this paper, monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate, and the monetary authorities can save wage setter the costs of indexing to the interest rate.
Abstract: Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of “indexing†to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.
149 citations
TL;DR: In this paper, models predicting overshooting and magnification, respectively, will be checked for their consistency with two key empirical regularities: A The observed pattern of price level vs exchange-rate volatility B The observed patterns of spot exchange rate vs forward exchange rate volatility.
86 citations
TL;DR: In this paper, the authors examined intervention policy in a three-country model and found that intervention can destabilize employment in another country and lead to retaliation in a general equilibrium setting.
51 citations
TL;DR: In this article, a new seasonal adjustment procedure based on a random coefficient model that permits vector serial correlation in the coefficient errors is introduced, which allows both deterministic and stochastic trend and seasonal components and their interactions to be simultaneously identified and estimated (rather than assumed known).
43 citations
TL;DR: In this paper, the effects of changes in the Federal Reserve's discount rate on the dollar's foreign exchange value were analyzed and shown to be independent of the spread between the discount rate and the Federal funds rate.
Abstract: This paper attempts to analyze the effects of changes in the Federal Reserve's discount rate on the dollar's foreign exchange value. If a discount rate increase were to signal a subsequent general increase in market interest rates, one would expect U. S. dollar-denominated assets to become relatively more attractive, and the ensuing increased demand for dollar assets to tend to raise the dollar's exchange value. The reverse would be true for discount rate decreases. However, in recent years the Federal Reserve's policy of moving the discount rate with a lag behind the Federal funds rate means that market participants generally have sufficient information to anticipate changes in the discount rate. When this is the case, announcement effectsimmediate and discernible market responses to discount rate changes-do not occur. Under special circumstances in 1978, however, announcement effects could and did occur. By increasing the discount rate when the Federal funds-discount rate differential was around normal levels and by increasing the discount rate by a larger amount than the market anticipated, the Federal Reserve used the discount rate as a signal to market participants that it would use other operating instruments to bring about changes in market interest rates and the monetary base. In their 1977 article, Raymond E. Lombra and Raymond G. Torto ran a number of econometric tests for discount rate exogeneity on monthly data from January 1968 to May 1974. They concluded that discount rate movements were not independent of the spread between the discount rate and the Federal funds rate. Given rational expectations, therefore, changes in the discount rate could not generate announcement effects [Lombra and Torto, 1977]. This paper updates the work of Lombra and Torto and then attempts to test directly
26 citations
24 citations
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TL;DR: This article attempted to resolve what Jacob Viner in his classic Studies in the Theory of International Trade and D. P. O'Brien in his The Classical Economists refer to as a major mystery in the history of economic thought.
Abstract: This article attempts to resolve what Jacob Viner in his classic Studies in the Theory of International Trade and D. P. O’Brien in his The Classical Economists refer to as a major mystery in the history of economic thought.
22 citations
TL;DR: In this article, the authors classify and measure the major sources of error, uncertainty or noise in economic data, regarding such data as observations from stationary and non-stationary time series.
18 citations
TL;DR: In this article, the authors examine the issue of the interest rate sensitivity of commercial bank profitability at a theoretical level and attempt to measure empirically the extent to which the profitability of different size classes of banks has been affected by periods of changing interest rates since 1976.
Abstract: It is frequently asserted that the profitability of institutions that lend long and borrow short is restricted during periods of rising interest rates. In banking circles this assertion has been translated into a concern primarily for the soundness of smaller banks, which are commonly thought to hold a large proportion of their portfolios in longer term fixed-rate loans and thus face considerable interest rate risk. Moreover, with the popularity of the new “NOW” accounts and competing money market mutual funds, there is a fear that a potential profit squeeze at these institutions has been made more probable. The present study examines the issue of the interest rate sensitivity of commercial bank profitability at a theoretical level and attempts to measure empirically the extent to which the profitability of different size classes of banks has been affected by periods of changing interest rates since 1976. This study finds that small commercial banks as a group have actually experienced increased profitability both absolutely and relative to large banks in recent periods (since 1976) of rising interest rates. However, this variation is numerically small. This finding calls into question both the usefulness of the maturity composition model as a predictor of interest rate risk and the concern for the supposed plight of small banks during periods of rising interest rates.
15 citations
TL;DR: In this paper, a profit function for an aggregate of large U.S. money center banks over 1970-1975 was estimated using a mixed, full information maximum likelihood estimation technique.
Abstract: A (translog) profit function is estimated for an aggregate of large U.S. money center banks over 1970–1975. Estimates of liability substitution elasticities and own price elasticities of demand are obtained and contrasted with results from earlier, partial equilibrium studies. Statistical analyses led to the rejection of two commonly held propositions in banking: (1) that the aggregation of all bank debt (to obtain a debt/equity ratio) is valid, and (2), that asset structure can be ignored when liability composition is being determined. A mixed, full information maximum likelihood estimation technique was used in estimation.
TL;DR: In this article, a theoretical model of the banking system's demand for cash reserves (i.e., vault cash plus cash deposits at the Bank of England) is developed, and conclusions are drawn based on the empirical results.
TL;DR: In this paper, alternative interest rate adjustment mechanisms are considered to explain variation in the spread between the prime rate and the commercial paper rate and to explain the phenomenon of below-prime lending.
TL;DR: In this paper, ten recent forecasting models of the U.S. domestic supply of crude oil and natural gas are analyzed and compared, focusing on how prices, taxes, government regulations and offshore leasing schedules are incorporated into the models.
TL;DR: In this article, the authors explore the possibility of estimating demand models derived from implicit function representations of preferences and find that the use of standard FIML estimation methods and computer codes results in unusually troublesome methodological problems.
TL;DR: This paper examined an oil price shock in a portfolio-balance framework where a wealth transfer is generated by altered current account positions, and showed that the exchange-rate impact of higher oil prices depends on the asset prefernces of both oil importers and oil exporters, as well as exchange rate expectations, which are influenced by countries' abilities to adjust to higher prices.
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TL;DR: For example, the damage done to the reputations of prominent economists due to their negative views on inflation has been discussed in this article, where a case in point is John Maynard Keynes (1883-1946), who was once highly regarded for his brilliant pathbreaking analysis of the causes of mass unemployment in the Great Depression of the 1930s.
Abstract: Not the least of inflation’s consequences is the damage done to the reputations of certain prominent economists. A case in point is John Maynard Keynes (1883-1946). Once highly regarded for his brilliant pathbreaking analysis of the causes of mass unemployment in the Great Depression of the 1930s, he is now given low marks for his views on inflation.
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TL;DR: In this paper, the authors examined intervention policy in a three-country model and found that intervention can destabilize employment in another country and lead to retaliation in a general equilibrium setting.
Abstract: Intervention policy is examined in a three-country model. Employment and output in each country depend upon the domestic currency value of a natural basket of currencies called the ‘Sally’. Each country will find it desirable to intervene to stabilize its Sally rate if capital movements are more volatile than trade flows. This is a natural generalization of well known small country results. However, in this general equilibrium setting it is clear that such a policy can destabilize employment in another country and lead to retaliation. Currency unions are also examined and found to have similar spillover problems.
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TL;DR: In this article, the authors extended the permanent income-cum-rational expectations hypothesis to the case of durables and found no evidence against the hypothesis in a case of automobile expenditures.
Abstract: Several recent papers have tested the permanent income-cum- rational expectations hypothesis using data on nondurable or semi-durable consumption. We show how this approach can be extended to the case of durables. An application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis. This result is unchanged in subsamples segregated by family holdings of liquid assets.
TL;DR: In this paper, it is shown that when the model is extended to do justice to expectations and to explicitly consider a loans market, momentary solutions are shown to exist and they can be stable.
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TL;DR: The West Virginia Bankers Association Eighty-Eighth Annual Convention, July 24, 1981 as discussed by the authors was the first year of the Federal Reserve Bank of Richmond's operation in West Virginia.
Abstract: Address by Robert P. Black, President, Federal Reserve Bank of Richmond, to the West Virginia Bankers Association Eighty-Eighth Annual Convention, July 24, 1981.
TL;DR: The authors examined the role of supplemental instruments on interest rates and monetary aggregates, and hence on monetary control, in view of the recent switch in operating procedures, and found that a change in the structure has occured which has contaminated pre-October 1979 data.
TL;DR: In this paper, a small econometric model is developed to evaluate the relative costs of implementing alternative monetary strategies to end inflation, and the two strategies examined are fast and gradual reductions int he target for monetary growth.
Abstract: In this paper a small econometric model is developed to evaluate the relative costs of implementing alternative monetary strategies to end inflation. The two strategies examined are fast and gradual reductions int he target for monetary growth. The primary effect of monetary policy on inflation in the short-run is through the policy effect on real output. Empirical results presented below quantify the short-run trade-off between ending inflation and supporting full-employment output growth.
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TL;DR: In this article, the monetary approach is proposed to determine the exchange rate in a regime of floating exchange rates, and the monetary model is used to determine exchange rate for the first time.
Abstract: Prominent among competing theories of exchange rate determination in a regime of floating exchange rates is the monetary approach.