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Showing papers by "Federal Reserve System published in 1983"


Journal ArticleDOI
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.

3,621 citations


ReportDOI
TL;DR: The authors examined the effects of the financial crisis of the 1930s on the path of aggregate output during that period and argued that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand.
Abstract: This paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector--output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.

673 citations


Journal ArticleDOI
TL;DR: In this paper, a technique for distributing quarterly time series across monthly values is described, which generalizes an approach described by Fernandez (1981) and presents results of a test of the accuracy of these two approaches and of two standard procedures suggested by Chow and Lin.
Abstract: This article describes a technique for distributing quarterly time series across monthly values. The method generalizes an approach described by Fernandez (1981). The article also presents results of a test of the accuracy of these two approaches and of the accuracy of two standard procedures suggested by Chow and Lin (1971).

283 citations


Journal ArticleDOI
TL;DR: In this paper, the empirical performance of the purchasing power parity (PPP) doctrine is evaluated using the data from Norway and the United Kingdom from 1874 to 1971, and the simple version of the PPP relationship is supported by the data only if different short run dynamics during a floating-rate period 1914-1928 is allowed for.
Abstract: SUMMARY Annual data from Norway and the United Kingdom from 1874 to 1971 are used to reassess the empirical performance of the purchasing power parity (PPP) doctrine. The simple version of the PPP relationship is supported by the data only if different short-run dynamics during a floating-rate period 1914-1928 is allowed for. Two sets of factors were found to be important in amending the simple PPP model. These were short-run cyclical variables affecting the adjustment towards the PPP equilibrium relationship and long-run structural factors such as productivity and terms of trade. Within this expanded model the proportionality between the exchange rate and relative price levels could not be rejected.

114 citations


Posted Content
TL;DR: A forecasting procedure based on a Bayesian method for estimating vector autoregressions is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations.
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 1983:3.We also describe how a model such as this can be used to make conditional projections and to analyze 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 inevaluating causal hypotheses, without containing any such hypotheses themselves.

113 citations


Journal ArticleDOI
TL;DR: In this paper, the joint hypothesis of rational expectations model of the term structure for three and six-month Treasury bills was tested using weekly data for Treasury bills maturing in exactly 13 and 26 weeks beginning in 1970 and ending in 1979.

102 citations



Journal ArticleDOI
TL;DR: In this article, a demand schedule for discount window borrowing based on profit-maximizing bank behavior is derived, and a feature of non-price rationing at the discount window making longer duration borrowing more costly is shown to make lagged borrowing and expected future spreads between the Federal funds rate and the discount rate relevant to the current borrowing decision.

92 citations


Journal ArticleDOI
TL;DR: In this paper, the accumulation of large external debts by eight developing countries since 1973 has been investigated and a framework that provides a useful measure of the economic burden of the external debts of these countries is presented.

64 citations


Posted Content
TL;DR: The authors developed a forecasting procedure based on a Bayesian method for estimating vector autoregressions, which is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations.
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 1983:3.We also describe how a model such as this can be used to make conditional projections and to analyze 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 inevaluating causal hypotheses, without containing any such hypotheses themselves.

61 citations


Journal ArticleDOI
TL;DR: The authors explored the implications of rational expectations and the aggregate supply theory for analysis of optimal monetary policy under uncertainty along the lines of Poole (1970), returning to a topic initially treated by Sargent and Wallace (1975).

ReportDOI
TL;DR: In this article, the authors reevaluated one method of identifying and estimating such deep parameters, recently advanced by Hansen and Singleton, that uses intertemporal efficiency expressions (Euler equations) and basic properties of expectations to produce orthogonality conditions that permit parameter estimation and hypothesis testing.
Abstract: Rational expectations theory instructs empirical researchers to uncover the values of 'deep' structural parameters of preferences and technology rather than the parameters of decision rules that confound these structural parameters with those of forecasting equations. This paper reevaluates one method of identifying and estimating such deep parameters, recently advanced by Hansen and Singleton, that uses intertemporal efficiency expressions (Euler equations) and basic properties of expectations to produce orthogonality conditions that permit parameter estimation and hypothesis testing. These methods promise the applied researcher substantial freedom, as it is apparently not necessary to specify the details of dynamic general equilibrium to study the behavior of a particular market participant. In this paper, we demonstrate that this freedom is illusory. That is, if there are shifts in agents' objectives which are not directly observed by the econometrician, then Euler equation methods encounter serious identification and estimation difficulties. For these difficulties to be overcome the econometrician must have prior knowledge concerning variables that are exogenous to the agent under study, as in conventional simultaneous equations theory.

Journal ArticleDOI
TL;DR: In this article, the equivalence of solution indeterminancies discussed by Blanchard and by Taylor with bubble solutions was shown. But this was only for the case of bubble solutions.

Journal ArticleDOI
TL;DR: In this article, the behavior of a sample of mature black-owned banks with that of a matched set of nonminority owned banks was compared to a set of NOMA banks.

Posted Content
TL;DR: The real/nominal rate relationship has a long history extending back more than 240 years as discussed by the authors, and it has been used to explain how an inflation premium was incorporated into and generated a rise in British interest rates during the Napoleonic wars.
Abstract: The proposition that the real rate of interest equals the nominal rate minus the expected rate of inflation (or alternatively, the nominal rate equals the real rate plus expected inflation) has a long history extending back more than 240 years. William Douglass articulated the idea as early as the 1740s to explain how the overissue of colonial currency and the resulting depreciation of paper money relative to coin raised the yield on loans denominated in paper compared to the yield on loans denominated in silver coin. In 1811 Henry Thornton used the same notion to explain how an inflation premium was incorporated into and generated a rise in British interest rates during the Napoleonic wars. Jacob de Haas, writing in 1889, employed the real/nominal rate idea to account for the “third (inflationary) element” in interest rates, the other two being a reward for capital and a payment for risk. And in 1890, Alfred Marshall cited the interest-inflation relationship as the key component in his theory of the transmission mechanism through which variations in the value of money generate trade cycles. The relationship achieved its classic exposition in Irving Fisher’s Appreciation and Interest (1896) where it was refined, restated, elaborated, and presented in the form in which it appears today. Apparently, however, some modern economists are largely unaware of this earlier tradition. As a result, they erroneously see the real/nominal rate relationship as a recent rather than an ancient idea. Thus, for example, Lawrence H. Summers of the National Bureau of Economic Research contends “that it was not until the 20th century that the distinction” between nominal and real interest rates “was even introduced into economic analysis.” [11; p. 48] The purpose of this article is to show that the tworate distinction long predates the 20th century. More precisely, this article demonstrates (1) that a rudimentary version of the real/nominal rate relationship had already been enunciated by the mid-1700s, (2) that the relationship was thoroughly understood and succinctly formulated by some of the leading 19th

Posted Content
TL;DR: Among the more contentious issues in the continuing debate over monetary policy is the central bank's ability permanently to peg real interest rates as discussed by the authors, which is one of the most controversial issues in monetary policy.
Abstract: Among the more contentious issues in the continuing debate over monetary policy is the central bank’s ability permanently to peg real interest rates.

Journal ArticleDOI
TL;DR: In this article, the authors examined two dimensions of institutional change: the trend in concentration of banking assets in the world's largest banks, and the relative position of banks from various countries among the largest banks.
Abstract: During the past two decades, international banking activity has grown rapidly. With institutional change of such magnitude taking place, it is interesting and potentially useful to look at the nature of the change. This paper examines two dimensions of this change: the trend in concentration of banking assets in the world's largest banks, and the relative position of banks from various countries among the world's largest banks. The data indicate that the percentage of banking deposits accounted for by the world's largest banks generally has increased steadily since 1956. The data also reveal that the importance of U.S. banks within the world's largest banks has declined dramatically since 1956. It is suggested that this trend is the result of the readjustment to the distortions of WWII, the rise of the commercial paper market in the U.S., and the large number of U.S. banks compared to other countries.

Journal ArticleDOI
TL;DR: In this article, the authors present a choice-theoretic general equilibrium model of capital accumulation in an open economy and compare the effects of restricting capital flows by taxing foreign investment eamings.
Abstract: This paper presents a dynamic, choice-theoretic general equilibrium model of capital accumulation in an open economy. Equilibria with and without capital mobility are described and compared. It is shown that neither is necessarily Pareto optimal and that an equilibrium with free trade in capital does not Pareto-dominate an equilibrium with autarky. The effects of restricting capital flows by taxing foreign investment eamings are discussed. It is seen that there will be no agreement within a country as to what constitutes an optimal tax. of restricting capital mobility by foreign investment taxation is discussed. The model employed is a two-country, overlapping-generations model (OLG) with production. It is an international version of Diamond's (1965) closed economy model, which combines a one-sector Solow growth model with Samuelson's OLG model. Each period a given number of agents are born. The agents live two periods and then die. In their first period of life agents born in period t may trade only with agents born in t - 1 or t. In their second period of life they may trade only with agents born in t + 1 or t. The model begins at period one. At this time the young of generation one and the old of generation zero are alive. It will be seen that in the first period of life agents save, and in the second period of life agents consume the return on their savings. Thus, the abstraction of a two-period life captures the essential feature of a life-cycle model: the agents begin life by saving, but at some point start to dissave. The major results are that if two countries differ only in initial capital abundance, then in autarky the initially more capital-abundant country will always be more capital abundant and will always have higher wages and lower interest rates than the initially less capital-abundant country. However, the steady state is identical in each country, with or without trade. Neither an autarky nor a laissez-faire equilibrium is necessarily Pareto optimal. Autarky and laissez faire are shown to be Pareto non-comparable. In the relatively capital-abundant country, laissez faire is preferred by generation zero and autarky is preferred by later generations. The reverse is true in the relatively labour- abundant country. There will be no unanimity as to the optimal level of foreign investment taxation in either country. Generation zero in the relatively capital- (labour-) abundant country will prefer a smaller (larger) tax than that which would maximize current national

Journal ArticleDOI
TL;DR: The ridge estimator as discussed by the authors is a simple version of a constrained least squares estimator which can be made operational even when little prior information is available, and it is shown that ridge estimators are nearly minimax and are not less stable than least squares in the presence of high multicollinearity.

Journal ArticleDOI
TL;DR: In this article, the relationship between reserve ratios and monetary control when deposit rates are flexible in the short run was examined, and it was shown that an increase in the reserve ration may raise the variance of a monetary aggregate.
Abstract: This paper examines the relationship between reserve ratios and monetary control when deposit rates are flexible in the short run. For a total reserves operating target, it is shown that an increase in the deposit reserve ration may raise the variance of a monetary aggregate. Under an interest rate operating target, it is also shown that the deposit reserve ratio affects both the expected value and the variance of a monetary aggregate. These findings for the two alternative operating targets differ sharply from previous results which were based on the assumption of fixed deposit rates.


Journal ArticleDOI
TL;DR: In this article, the impact of lagged reserve accounting on individual bank behavior is examined empirically, and it is found that bank behavior does not differ fundamentally under LRA and that banks make their earning asset adjustments promptly and that expected future interest rates are important in their decisions.

Journal ArticleDOI
TL;DR: In this paper, a consistent set of conditions that a prior pdf for the reduced-form parameters must satisfy if Zellner's MELO estimators for the structural coefficients of a linear structural econometric model are to exist in all normal cases where the available sample is undersized.
Abstract: The article presents a consistent set of conditions that a prior pdf for the reduced-form parameters must satisfy if Zellner's MELO estimators for the structural coefficients of a linear structural econometric model are to exist in all normal cases where the available sample is undersized. Also, the conditions under which the full information maximum likelihood estimators of structural coefficients exist are given. Finally, the article reports application of MELO estimation to Klein's Model I.

Journal ArticleDOI
TL;DR: The authors reviewed the Housing Commission's perspective and recommendations on management of interest-rate risks in housing finance, and considered the relative advantages of various techniques by which institutions on the supply side of mortgage markets can absorb or shift such risks.
Abstract: This article reviews the Housing Commission's perspective and recommendations on management of interest-rate risks in housing finance, and considers the relative advantages of various techniques by which institutions on the supply side of mortgage markets can absorb or shift such risks. It is argued that exchange-based options can provide a more reliable way than cash forward contracting for originators or purchasers of mortgages to manage commitment-period risk, but that commitment fees charged household borrowers should not fully correspond to premiums for put options “traded” on the exchanges. It also is argued that exchange-based futures can provide a more effective and economical way than asset-liability maturity matching in cash markets for thrift institutions to manage portfolio interest-rate risks; in particular, futures trading can permit these institution to meet the maturity preferences of liquidity-conscious creditors and risk-averse borrowers, to reduce the risk associated with unexpected shifts of the yield curve, and to maintain a higher degree of asset quality. The capacity of futures markets to handle large-scale hedging by mortgage market participants will depend upon heavy participation by highly leveraged speculators who are willing to take long positions without the receipt of substantial risk premiums from hedgers.


Journal ArticleDOI
TL;DR: In this article, the authors discuss the Housing Commission's perspective and recommendations on mortgage pass-through securities markets, review federal policy toward such securities, and consider the prospects for mortgage securities in the housing finance system of the future.
Abstract: This paper discusses the Housing Commission's perspective and recommendations on mortgage pass-through securities markets, reviews federal policy toward such securities in the wake of the Housing Commission Report, and considers prospects for mortgage securities in the housing finance system of the future. Concerning the outlook, it is concluded that massive “securitization” of housing finance may not be inevitable–contrary to the developing conventional wisdom on this topic–partly because the underlying need for secondary market transactions may not be as strong as commonly expected. Furthermore, the relative importance of pass-through securities as secondary market vehicles may erode if federally related programs are phased down in line with Housing Commission recommendations, even if policies currently being developed within the Administration to improve the functioning of fully private securities markets are implemented.

Journal ArticleDOI
TL;DR: In this paper, the authors investigated factors that affect the valuation of controlling shares of closely held bank stocks and found that traditional financial factors, earnings and growth variables proved to be important.
Abstract: This paper investigated factors that affect the valuation of controlling shares of closely held bank stocks. With regard to traditional financial factors, earnings and growth variables proved to be important. In addition, the prior ownership position of the buyer was important in pricing the stock. Other non-traditional valuation factors were investigated with only limited success. The statistical work was enhanced by a robust regression technique.

Journal ArticleDOI
TL;DR: In this paper, the authors provide an explanation for recent empirical results that suggest that market concentration has a negative effect on profitability at the firm level, and cast doubts on traditional interpretations of high market shares as evidence of market power.

Posted Content
TL;DR: This article explored financial transactions within bank holding companies in both a theoretical and an empirical context, focusing on two major types of interaffiliate financial transactions between holding company banks and their nonbank affiliates over the period 1976-1980.
Abstract: This study explores financial transactions within bank holding companies in both a theoretical and an empirical context. Empirical analysis focuses on two major types of interaffiliate financial transactions—extensions of credit and transfers of assets—between holding company banks and their nonbank affiliates (defined to include the parent company and nonbank subsidiaries of the parent) over the period 1976–1980. The data generally point to a net downstream flow of funds from the nonbank sector to the bank sector of a holding company, with the downstream fund flows particularly strong in the case of extensions of credit. In part, this result may reflect the statutory restrictions on bank lending to affiliates, particularly the collateral requirements.

Book ChapterDOI
TL;DR: In this article, the theoretical structure and simulation properties of the multicountry model (MCM) have been discussed, which is a system of linked national macroeconomic models at the centre of which a medium-sized model of the US economy is presented.
Abstract: Publisher Summary This chapter discusses the theoretical structure and simulation properties of the multicountry model (MCM) that has been developed in the International Finance Division at the Federal Reserve Board. MCM is a system of linked national macroeconomic models at the centre of which is a medium-sized model of the US economy. Linked to it, and to each other, are models for Canada, the Federal Republic of Germany (FRG), Japan, the United Kingdom, and an abbreviated model representing the Rest of the World (ROW). The country models explain the domestic variables and international transactions of each country. The instruments of monetary policy—reserve requirements, the discount rate, and net central-bank holdings of domestic and foreign assets—and fiscal policy—government expenditures and tax rates—are integrated into each country model. All five models have been simulated in isolation, and have been linked with each other and with a small set of equations explaining the merchandise trade of an aggregated ROW sector and short- and long-term Eurodollar interest rates.