Several recent studies have reached quite different conclusions about which variable is the best ... more Several recent studies have reached quite different conclusions about which variable is the best indicator of the stance of monetary policy. These differences likely reflect varying assumptions about bank and Federal Reserve behavior. This paper takes a detailed and comprehensive look at the implementation of monetary policy and the identification of monetary policy shocks. The paper first outlines a general analytical model for studying and evaluating monetary policy procedures. The model is then used to estimate both the Fed's operational policy objectives and its intermediate objectives. The results can be summarized as follows: First, monetary policy shocks over the past several years have primarily affected the federal funds rate, even during periods when the Fed was reportedly targeting reserves. In addition, the paper finds a statistically-significant liquidity effect in all periods examined, although the effect is quite small. Finally, there is statistical evidence that ...
Journal of Business & Economic Statistics, 1992
Two critical assumptions are often made in empirical research regarding the relationship between ... more Two critical assumptions are often made in empirical research regarding the relationship between economic variables and economic disturbances—linearity and Gaussianity. Together, these two assumptions place strong restrictions on the time series behavior of a model. Most important, these restrictions imply conditional symmetry. Using seminonparametric (SNP) techniques, this article presents evidence that real gross national product growth displays conditional asymmetry. Although these results confirm related results of Brock and Sayers, Sichel, and Hamilton, the SNP approach is novel in that it emphasizes the relationship between common modeling assumptions and the restrictions that these assumptions place on data.
International Journal of Finance & Economics, 1998
In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their rec... more In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their recent impact on the Japanese economy. First, we find that proxies for financial factors enter significantly in behavioral equations for loan standards, loan demand and aggregate demand, although these proxies explain only a small amount of the variation in those variables. Second, there is some, albeit inconclusive, evidence that balance-sheet problems of households and firms contributed to Japan's recent recession. We find that exogenous declines in equity prices contributed significantly to the decline in loans and economic activity, although part of this influence appears to be operating through traditional wealth effects. In addition, loan demand shocks, which could reflect balance-sheet problems not captured by our model, account for much of the remainder of the shortfall in loans and some of the shortfall in economic activity. Finally, we also find some evidence that an exogenous contraction in loan supply, a "credit crunch," may have lowered output by a small degree, but only in the early phases of the recession.
This paper considersan alternativeeconometricapproach to the VAR methodologyfor identifyingand es... more This paper considersan alternativeeconometricapproach to the VAR methodologyfor identifyingand estimatingthe effects of monetary policy shocks. The alternativeapproach incorporates availablemeasuresof market participants'expectationsof economicvariables in order to calculateeconomicinnovationsto those variables. In general, expectationsmeasures should provide important additionalinformationrelative to a standard VAR analysis, since market participants presumably use a much richer informationset than that assumed in a typical VAR model. The resulting innovationsare easily incorporatedin a VAR-like fimework. The empirical results are quite surprising. First, when expectationsare incorporated,the variance of all innovationsis reduced substantially. Second, innovationsto the federal funds rate derived using the alternativeapproach are only somewhatcorrelatedwith their VAR counterparts, while innovationsto other economicvariables are essentiallyuncorrelated. Still, monetary policy shoch derived using the two approachesare a(so somewhatcorrelated, since innovationsto prices and economic activity explainonly a small fraction of innovationsto the fderal funds rate. As a consequence,the impulseresponsesof economicvariables to the two sets of monetary policy shocks have remarkably similar properties. Using Measures of Expectations to Identi& the Effects of a Monetary Policy Shock Allan D. Brunnerl I. Introduction Vectorautoregressive (VAR) models, popularizedby Sims (1980), have been used widely and extensivelyby economiststo study the dynamic behaviorof economicvariables. The appeal of VAR models is likely due to severalattractivefeatures relative to other econometric modeling approaches. These features include a minimum number of identi~ing restrictions, few exogenousvariables,and an ease of implementation. Still, the use of a VAR model requires a few strong assumptionsabout the availabilityof informationto economicagents, some of which are also common to other moreoveridentifiedeconometricmodels. This paper considersan alternativeapproach that address some possible shoticomingsof the VAR approach,while maintainingmany of its appealing features. The estimationof a structuralVAR m~el generally requires two steps. First, a vector of economic variables,~, is regressed on several lags of itself. The set of lagged variables (dated t-1 and earlier) is assumed to be a good proxy for the information set that is available to economic agents just prior to the determination of Xt. As a consequence, VAR residuals are interpreted as economic innovations, new informationabout Xt that becomesavailableat time t. In the second step of estimation, the innovationsare decomposedinto orthogonalshoch using one of several methods. These shocks are ofien given a structuralor behavioralinterpretation. This paper is concernedprimarily with two implicit assumptionsthat are made in the first step 1 The author is an economistin the InternationalFinance Division, Board of Governors of the Federal Reserve System. The author would like to thank Neil Ericsson, Bill Helkie, Dale Henderson, and workshop participantsat the Board of Governorsfor usefil commentson earlier versions of this paper. He is also grateful to Larry Christian, Charlie Evans, Christian Gilles, Vincent Reinha.rt,and Glenn Rudebuschfor helpfil discussionsand to AthanasiosOrphanidesand James Walsh for providing the MMS data. This paper representsthe views of the author and should not be interpretedas reflecting the views of the Board of Governorsof the Federal Reserve System or other member of its staff. The author is responsiblefor any errors.
In this paper, we investigate a number of issues that have not been completely addressed in previ... more In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects of monetary policy. Overall, we interpret our results as weak evidence in favor of sticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state of the business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.
... conditional variance to persist over time. Although he found that a GARCH model fit US inflat... more ... conditional variance to persist over time. Although he found that a GARCH model fit US inflation data marginally better, he also found little sup-port for theinflation-uncertainty hypothesis. In related studies, Evans (1991) and ...
... Public Finances and Economic Growth. Allan D. Brunner. International Monetary Fund. 700 19 th... more ... Public Finances and Economic Growth. Allan D. Brunner. International Monetary Fund. 700 19 th Street, NW. ... King, Robert G., Charles I. Plosser, and Sergio Rebelo, 1988, Production, Growth, and Business Cycles: II New Directions, Journal of Monetary Economics, 21:309-41. ...
... Measures of Cost Efficiency in Selected Countries (Relative to Commercial Banks), 1997-2001 2... more ... Measures of Cost Efficiency in Selected Countries (Relative to Commercial Banks), 1997-2001 21 13 ... as background for IMF Executive Board discussions on the German Financial Sector Assessment ... the 1980s and 1990s to introduce more varied forms of ownership, reduce the ...
TItis paper models weekly excess returns of 10-year Treasury notes and long-tenn Treasury bonds f... more TItis paper models weekly excess returns of 10-year Treasury notes and long-tenn Treasury bonds flOm 1968 through 1993 using an exponential generalized autoregressive conditional heteroskedasticity in mean (EGARCH-M) approach. The results indicate the presence of conditional heteroskedasti-;;ity and a strong tendency for the ex-ante volatility of excess returns to increase more following negative excess return innovations compared to positive innovations of equal magnitude. In addition, increases in ex-ante volatility are associated in some subperiods with rising excess returns on longer-tenn instruments, although the slope of the yield curve and lagged excess returns generally remain~;ignificant predictors of excess returns.
This paper examines the effects of trade costs on macroeconomic volatility. We first construct a ... more This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price
Typescript. Theses (Ph. D.)--Duke University, 1989. Vita. Includes bibliographical references (le... more Typescript. Theses (Ph. D.)--Duke University, 1989. Vita. Includes bibliographical references (leaves 136-137).
In late 1990, the Federal Reserve eliminated reserve requirements on nonpersonal time deposits, a... more In late 1990, the Federal Reserve eliminated reserve requirements on nonpersonal time deposits, and required reserves fell by about $10 billion, an almost 20-percent reduction. In early 1992, reserve requirements against transaction accounts were lowered from 12 ...
Several recent studies have reached quite different conclusions about which variable is the best ... more Several recent studies have reached quite different conclusions about which variable is the best indicator of the stance of monetary policy. These differences likely reflect varying assumptions about bank and Federal Reserve behavior. This paper takes a detailed and comprehensive look at the implementation of monetary policy and the identification of monetary policy shocks. The paper first outlines a general analytical model for studying and evaluating monetary policy procedures. The model is then used to estimate both the Fed's operational policy objectives and its intermediate objectives. The results can be summarized as follows: First, monetary policy shocks over the past several years have primarily affected the federal funds rate, even during periods when the Fed was reportedly targeting reserves. In addition, the paper finds a statistically-significant liquidity effect in all periods examined, although the effect is quite small. Finally, there is statistical evidence that ...
Journal of Business & Economic Statistics, 1992
Two critical assumptions are often made in empirical research regarding the relationship between ... more Two critical assumptions are often made in empirical research regarding the relationship between economic variables and economic disturbances—linearity and Gaussianity. Together, these two assumptions place strong restrictions on the time series behavior of a model. Most important, these restrictions imply conditional symmetry. Using seminonparametric (SNP) techniques, this article presents evidence that real gross national product growth displays conditional asymmetry. Although these results confirm related results of Brock and Sayers, Sichel, and Hamilton, the SNP approach is novel in that it emphasizes the relationship between common modeling assumptions and the restrictions that these assumptions place on data.
International Journal of Finance & Economics, 1998
In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their rec... more In this paper, we examine the role of "financial factors" in Japan and attempt to gauge their recent impact on the Japanese economy. First, we find that proxies for financial factors enter significantly in behavioral equations for loan standards, loan demand and aggregate demand, although these proxies explain only a small amount of the variation in those variables. Second, there is some, albeit inconclusive, evidence that balance-sheet problems of households and firms contributed to Japan's recent recession. We find that exogenous declines in equity prices contributed significantly to the decline in loans and economic activity, although part of this influence appears to be operating through traditional wealth effects. In addition, loan demand shocks, which could reflect balance-sheet problems not captured by our model, account for much of the remainder of the shortfall in loans and some of the shortfall in economic activity. Finally, we also find some evidence that an exogenous contraction in loan supply, a "credit crunch," may have lowered output by a small degree, but only in the early phases of the recession.
This paper considersan alternativeeconometricapproach to the VAR methodologyfor identifyingand es... more This paper considersan alternativeeconometricapproach to the VAR methodologyfor identifyingand estimatingthe effects of monetary policy shocks. The alternativeapproach incorporates availablemeasuresof market participants'expectationsof economicvariables in order to calculateeconomicinnovationsto those variables. In general, expectationsmeasures should provide important additionalinformationrelative to a standard VAR analysis, since market participants presumably use a much richer informationset than that assumed in a typical VAR model. The resulting innovationsare easily incorporatedin a VAR-like fimework. The empirical results are quite surprising. First, when expectationsare incorporated,the variance of all innovationsis reduced substantially. Second, innovationsto the federal funds rate derived using the alternativeapproach are only somewhatcorrelatedwith their VAR counterparts, while innovationsto other economicvariables are essentiallyuncorrelated. Still, monetary policy shoch derived using the two approachesare a(so somewhatcorrelated, since innovationsto prices and economic activity explainonly a small fraction of innovationsto the fderal funds rate. As a consequence,the impulseresponsesof economicvariables to the two sets of monetary policy shocks have remarkably similar properties. Using Measures of Expectations to Identi& the Effects of a Monetary Policy Shock Allan D. Brunnerl I. Introduction Vectorautoregressive (VAR) models, popularizedby Sims (1980), have been used widely and extensivelyby economiststo study the dynamic behaviorof economicvariables. The appeal of VAR models is likely due to severalattractivefeatures relative to other econometric modeling approaches. These features include a minimum number of identi~ing restrictions, few exogenousvariables,and an ease of implementation. Still, the use of a VAR model requires a few strong assumptionsabout the availabilityof informationto economicagents, some of which are also common to other moreoveridentifiedeconometricmodels. This paper considersan alternativeapproach that address some possible shoticomingsof the VAR approach,while maintainingmany of its appealing features. The estimationof a structuralVAR m~el generally requires two steps. First, a vector of economic variables,~, is regressed on several lags of itself. The set of lagged variables (dated t-1 and earlier) is assumed to be a good proxy for the information set that is available to economic agents just prior to the determination of Xt. As a consequence, VAR residuals are interpreted as economic innovations, new informationabout Xt that becomesavailableat time t. In the second step of estimation, the innovationsare decomposedinto orthogonalshoch using one of several methods. These shocks are ofien given a structuralor behavioralinterpretation. This paper is concernedprimarily with two implicit assumptionsthat are made in the first step 1 The author is an economistin the InternationalFinance Division, Board of Governors of the Federal Reserve System. The author would like to thank Neil Ericsson, Bill Helkie, Dale Henderson, and workshop participantsat the Board of Governorsfor usefil commentson earlier versions of this paper. He is also grateful to Larry Christian, Charlie Evans, Christian Gilles, Vincent Reinha.rt,and Glenn Rudebuschfor helpfil discussionsand to AthanasiosOrphanidesand James Walsh for providing the MMS data. This paper representsthe views of the author and should not be interpretedas reflecting the views of the Board of Governorsof the Federal Reserve System or other member of its staff. The author is responsiblefor any errors.
In this paper, we investigate a number of issues that have not been completely addressed in previ... more In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects of monetary policy. Overall, we interpret our results as weak evidence in favor of sticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state of the business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.
... conditional variance to persist over time. Although he found that a GARCH model fit US inflat... more ... conditional variance to persist over time. Although he found that a GARCH model fit US inflation data marginally better, he also found little sup-port for theinflation-uncertainty hypothesis. In related studies, Evans (1991) and ...
... Public Finances and Economic Growth. Allan D. Brunner. International Monetary Fund. 700 19 th... more ... Public Finances and Economic Growth. Allan D. Brunner. International Monetary Fund. 700 19 th Street, NW. ... King, Robert G., Charles I. Plosser, and Sergio Rebelo, 1988, Production, Growth, and Business Cycles: II New Directions, Journal of Monetary Economics, 21:309-41. ...
... Measures of Cost Efficiency in Selected Countries (Relative to Commercial Banks), 1997-2001 2... more ... Measures of Cost Efficiency in Selected Countries (Relative to Commercial Banks), 1997-2001 21 13 ... as background for IMF Executive Board discussions on the German Financial Sector Assessment ... the 1980s and 1990s to introduce more varied forms of ownership, reduce the ...
TItis paper models weekly excess returns of 10-year Treasury notes and long-tenn Treasury bonds f... more TItis paper models weekly excess returns of 10-year Treasury notes and long-tenn Treasury bonds flOm 1968 through 1993 using an exponential generalized autoregressive conditional heteroskedasticity in mean (EGARCH-M) approach. The results indicate the presence of conditional heteroskedasti-;;ity and a strong tendency for the ex-ante volatility of excess returns to increase more following negative excess return innovations compared to positive innovations of equal magnitude. In addition, increases in ex-ante volatility are associated in some subperiods with rising excess returns on longer-tenn instruments, although the slope of the yield curve and lagged excess returns generally remain~;ignificant predictors of excess returns.
This paper examines the effects of trade costs on macroeconomic volatility. We first construct a ... more This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price
Typescript. Theses (Ph. D.)--Duke University, 1989. Vita. Includes bibliographical references (le... more Typescript. Theses (Ph. D.)--Duke University, 1989. Vita. Includes bibliographical references (leaves 136-137).
In late 1990, the Federal Reserve eliminated reserve requirements on nonpersonal time deposits, a... more In late 1990, the Federal Reserve eliminated reserve requirements on nonpersonal time deposits, and required reserves fell by about $10 billion, an almost 20-percent reduction. In early 1992, reserve requirements against transaction accounts were lowered from 12 ...
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