Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

Bayesian and Non-Bayesian Analysis of Switching Regressions and of Random Coefficient Regression Models

Abstract: Quandt [20] analyzed the problem of discontinuous shifts in regression regimes at unknown points in the data series. We note that Quandt's statistical approach based solely on the likelihood function can be misleading, whereas the Bayesian method based on a proper prior distribution of the unknown parameters yields sensible results. However, the exact evaluation of the posterior distribution is unusually burdensome and cannot be simplified even in large samples. To avoid this difficulty, we suggest an alternative formulation and provide an approximate Bayesian solution. In this alternative formulation, the coefficient vectors are treated as random drawings from a continuous multivariate distribution.

Monetary Aggregates and Liquidity in a Neo-Wicksellian Framework

Abstract: Woodford (2003) describes a popular class of neo-Wicksellian models in which monetary policy is characterized by an interest-rate rule, and the money market and financial institutions are typically not even modelled. Critics contend that these models are incomplete and unsuitable for monetary-policy evaluation. Our Banks and Bonds model starts with a standard neo-Wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks. The Banks and Bonds model gives a more complete description of the economy, but the neo-Wicksellian model has the virtue of simplicity. Our purpose here is to see if the neo-Wicksellian model gives a reasonably accurate account of macroeconomic behaviour in the more complete Banks and Bonds model. We do this by comparing the models' second moments, variance decompositions and impulse response functions. We also study the role of monetary aggregates and velocity in predicting inflation in the two models.

Labor Reallocation over the Business Cycle: New Evidence from Internal Migration

Abstract: This article establishes the cyclical properties of a novel measure of worker reallocation: long-distance migration rates within the United States. Combining evidence from a number of data sets spanning the entire postwar era, we find that internal migration within the United States is procyclical. This result cannot be explained by cyclical variation in relative local economic conditions, suggesting that the net benefit of moving rises during booms. Migration is most procyclical for younger labor-force participants. Therefore, cyclical fluctuations in the net benefit of moving appear to be related to conditions in the labor market and the spatial reallocation of labor.

Modeling earnings dynamics

Abstract: In this paper, we use indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. We use the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes. We also study the dynamic response of wage rates, hours, and earnings to various shocks, and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. We find that human capital accounts for most of the growth of earnings over a career, although job seniority and job mobility also play significant roles. Unemployment shocks have a large impact on earnings in the short run, as well as a substantial long-term effect that operates through the wage rate. Shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job-specific error components of wages and hours.

Assessing Changes in the Monetary Transmission Mechanism: A VAR Approach

Abstract: (ProQuest Information and Learning: Formulae omitted.) 1. INTRODUCTION Several authors have documented a reduced variability of output and inflation in the United States since the beginning of the 1980s.1 In fact, a comparison of the 1980:1-2001:2 period with the two preceding decades shows that the standard deviation of quarterly output growth has fallen 30 percent, while the standard deviation of inflation has decreased more than 40 percent. These changes in the time series properties of output and inflation raise a number of important questions for policymakers. For instance, has this increased stability been associated with an alteration of the transmission of monetary policy due, for example, to changes in the behavior of consumers, firms, or the Federal Reserve? Does monetary policy still affect inflation and output as much as it did in the 1960s and 1970s? Should we expect the reduced volatility of the U.S. economy to last? The answers to these questions depend in fact on the origin of the changes. In particular, they require a determination of whether the reduced volatility of output and inflation is due to smaller and less frequent disturbances, such as shocks to productivity, foreign economies, fiscal policy, and monetary policy, or whether the propagation of these shocks has changed so that output and inflation have become less sensitive to shocks. Clearly, if the main cause of the increased economic stability in the past two decades is a reduction in the importance of exogenous shocks, or special circumstances, then there is a good chance that once confronted again with large successive shocks, the economy will again become more volatile. Alternatively, if most of the reduced volatility is due to a change in the propagation of the disturbances, then it is plausible to expect the greater stability to last. In the latter case, it is also plausible to think that the monetary transmission mechanism has changed. Several factors may have rendered the economy more immune to shocks. On the one hand, firms and consumers may have changed their behavior and the organization of markets in a way that has reduced the effect of given shocks on output and inflation. For instance, Kahn, McConnell, and Perez-Quiros (2002) argue that a more effective management of inventories has been an important factor behind the reduction in the variability in output. On the other hand, the conduct of monetary policy may have been more responsive to fluctuations in inflation and output since the beginning of the 1980s, partly compensating for the effect that shocks may have had on inflation and output (see Clarida, Gali, and Gentler [2000] and Boivin and Giannoni [2002]). In this paper, we seek to understand more clearly the nature of the changes in the U.S. economy over the past four decades, and to determine whether the reduction in output and inflation variability has been associated with a change in the transmission of monetary policy. First, we estimate a small vector autoregression (VAR) model using U.S. data from 1960 to 2001 and test for its stability. Our results suggest that instability is prevalent both in the systematic part of the estimated VAR and in the variance of shocks. Second, through counterfactual experiments, we assess whether the reduced variability of the economy is due principally to less important shocks (or special events) or to changes in the propagation mechanism of these shocks. We find that the change in the propagation of the shocks in the past two decades accounts for roughly 40 percent of the decrease in the variance of detrended output and for 60 percent of the reduction in the variance of inflation. Because we find that a significant fraction of the reduced volatility is attributable to a change in the propagation of the shocks, we impose more structure on our empirical model to assess whether there has been a change in the transmission of monetary policy. We find that output and inflation have displayed diminished dynamic responses to unexpected federal funds rate movements since the beginning of the 1980s. …