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Begin New Search Topic Industrial Policy Publishing Institution Board of Governors of the Federal Reserve System

1. Quantity Discounts from Risk Averse Sellers

Author:
Patrick J. DeGraba
Publication Date:
05-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
It is widely believed that larger customers in a market can secure lower prices than smaller customers. This paper presents conditions under which risk averse sellers, who can distinguish larger customers from smaller customers, but who cannot observe customers' valuations, have an incentive to offer lower prices to larger customers. The intuition is that a single customer that demands a specific quantity represents a riskier profit source than multiple customers with independent valuations whose demands sum to that same quantity. Sellers respond to the riskier profit source by offering a lower price to reduce some of the risk.
Topic:
Economics, Emerging Markets, Industrial Policy, and International Trade and Finance

2. A Flexible Finite-Horizon Identification of Technology Shocks

Author:
Neville Francis, Michael T. Owyang, and Jennifer T. Roush
Publication Date:
04-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Recent empirical studies using infinite horizon long-run restrictions question the validity of the technology-driven real business cycle hypothesis. These results have met with their own controversy, stemming from their sensitivity to changes in model specification and the general poor performance of long run restrictions in Monte Carlo experiments. We propose a alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long, but finite horizon. In small samples, our identification outperforms its infinite horizon counterpart by producing less biased impulse responses and technology shocks that are more highly correlated with the technology shocks from the underlying model. For U.S. data, we show that the negative hours response is not robust to allowing a greater role for non-technology shocks in the forecast error variance share at a ten year horizon.
Topic:
Development, Industrial Policy, International Trade and Finance, and Science and Technology
Political Geography:
United States

3. Exchange Rate Pass-through to U.S. Import Prices: Some New Evidence

Author:
Jaime Marquez, Mario Marazzi, Nathan Sheets, Joseph Gagnon, Robert J. Vigfusson, Jon Faust, Robert F. Martin, Trevor Reeve, and John Rogers
Publication Date:
04-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper documents a sustained decline in exchange rate pass-through to U.S. import prices, from above 0.5 during the 1980s to somewhere in the neighborhood of 0.2 during the last decade. This decline in the pass-through coefficient is robust to the measure of foreign prices that is included in the regression (i.e., CPI versus PPI), whether the estimation is done in levels or differences, and whether U.S. prices are included as an explanatory variable. Notably, the largest estimates of pass-through are obtained when commodity prices are excluded from the regression. In this case, the pass-through coefficient captures both the direct effect of the exchange rate on import prices and an indirect effect operating through changes in commodity prices. Our work indicates that an increasing share of exchange rate pass-through has occurred through this commodity-price channel in recent years. While the source of the decline in passthrough is difficult to pin down with certainty, our work points to several factors, including the reduced share of (commodity-intensive) industrial supplies in U.S. imports and the increased presence of Chinese exporters in U.S. markets. We detect a particular step down in the passthrough coefficient around the time of the Asian financial crisis and document a shift in the export pricing behavior of emerging Asian firms around that time.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
United States and China

4. A Variance Screen for Collusion

Author:
Rosa M. Abrantes-Metz, Luke M. Froeb, John F. Geweke, and Charles T. Taylor
Publication Date:
03-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In this paper, we examine price movements over time around the collapse of a bid-rigging conspiracy. While the mean decreased by sixteen percent, the standard deviation increased by over two hundred percent. We hypothesize that conspiracies in other industries would exhibit similar characteristics and search for "pockets" of low price variation as indicators of collusion in the retail gasoline industry in Louisville. We observe no such areas around Louisville in 1996-2002.
Topic:
Economics, Emerging Markets, Industrial Policy, and International Trade and Finance

5. Optimal Inflation Persistence: Ramsey Taxation with Capital and Habits

Author:
Sanjay Chugh
Publication Date:
03-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Ramsey models of fiscal and monetary policy with perfectly-competitive product markets and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation. The result depends on increases in either the ability to smooth consumption or the preference for doing so. The effect operates through the Fisher relationship: a smoother profile of consumption implies a more persistent real interest rate, which in turn implies persistent optimal inflation. Our work complements a recent strand of the Ramsey literature based on models with nominal rigidities. In these models, inflation volatility is lower but continues to exhibit very little persistence. We quantify the effects of habit and capital on inflation persistence and also relate our findings to recent work on optimal fiscal policy with incomplete markets.
Topic:
Economics, Emerging Markets, Industrial Policy, and International Trade and Finance

6. Financial Market Developments and Economic Activity during Current Account Adjustments in Industrial Economies

Author:
Steven B. Kamin, Sylvain Leduc, and Hilary Croke
Publication Date:
02-2005
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Much has been written about prospects for U.S. current account adjustment, including the possibility of what is sometimes referred to as a “disorderly correction”: a sharp fall in the exchange rate that boosts interest rates, depresses stock prices, and weakens economic activity. This paper assesses some of the empirical evidence bearing on the likelihood of the disorderly correction scenario, drawing on the experience of previous current account adjustments in industrial economies. We examined the paths of key economic performance indicators before, during, and after the onset of adjustment, building on the analysis of Freund (2000).
Topic:
Development, Economics, Industrial Policy, and International Trade and Finance
Political Geography:
United States

7. Cash Flows and Discount Rates, Industry and Country Effects, and Co-Movement in Stock Returns

Author:
John Ammer and Jon Wongswan
Publication Date:
09-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines the relative importance of global, country-specific, and industry-specific factors in both the cash flow and discount rate components of equity returns between 1995 and 2003. Our framework draws upon previously separate literatures on country versus industry effects and (forward-looking) cash flow versus discount rate components of equity return innovations. We apply the Campbell (1991) decomposition for industry-by-country, all-country, global industry, and world market index returns so we can produce a richer characterization of same-industry and same-country effects in stock returns. Unlike previous equity return decomposition papers, we exploit information in equity analysts' earnings forecasts when projecting future variables from our reduced-form equation systems. Our findings confirm previous research that finds patterns of correlation that suggest a richer underlying structure than just a single common global factor. Furthermore, our results suggest that global, within-country, and same-industry effects are all important for both of the two key components of stock returns: news about future dividends and news about future discount rates. In particular, within-industry covariation in news about future discount rates appears to be just as important as within-country covariation in news about future discount rates. We also find that the idiosyncratic component of cash flow news is more important than the global component, while the reverse is true for news about future discount rates. Our results are broadly consistent with co-movement in future discount rates arising from perceptions of common elements of risk, rather than national market segmentation.
Topic:
International Relations, Economics, Industrial Policy, and International Trade and Finance

8. Defense Industrial Base Capabilities Study: Force Application

Publication Date:
10-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In February 2003, the Office of the Deputy Under Secretary of Defense for Industrial Policy, ODUSD(IP), produced Transforming the Defense Industrial Base: A Roadmap. This report identified the need for systematic evaluation of the ability of the defense industrial base to develop and provide functional, operational effects-based warfighting capabilities. The Defense Industrial Base Capabilities Study (DIBCS) series is a systematic assessment of critical technologies needed in the 21st century defense industrial base to meet warfighter capabilities, as framed by the Joint Staff's functional concepts. In addition, the DIBCS series provides the basis for strengthening the industrial base required for 21st century warfighting needs. This report addresses the third of those functional concepts, Force Application.
Topic:
Defense Policy, Industrial Policy, and Science and Technology
Political Geography:
United States

9. The Vertical Lift Industrial Base: Outlook 2004-2014

Publication Date:
07-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The vertical lift industrial base still is being shaped by government and industry responses to the Nunn-McCurdy cost breaches of 2001 and the unintended consequences of Department-endorsed teaming arrangements that resulted in an interlocked industrial base that restricted Department and industry flexibility. The Department's budget-driven remanufacture strategy in the 1990s produced a series of sole-sourced relationships, leaving few real competitive opportunities among the helicopter prime contractors to force technology refresh cycles. With limited competition, few new platform contracts, and declining government technology investments, industry was left little incentive to invest in independent research.
Topic:
Defense Policy, Industrial Policy, and Science and Technology
Political Geography:
United States

10. Defense Industrial Base Capabilities Study: Command Control

Publication Date:
06-2004
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In February 2003, the Office of the Deputy Under Secretary of Defense for Industrial Policy, ODUSD(IP), produced Transforming the Defense Industrial Base: A Roadmap. This report identified the need for systematic evaluation of the ability of the defense industrial base to develop and provide functional, operational effects-based warfighting capabilities. The Defense Industrial Base Capabilities Study (DIBCS) series is a systematic assessment of critical technologies needed in the 21st century defense industrial base to meet warfighter requirements as framed by the Joint Staff's functional concepts. In addition, the DIBCS series provides the basis for strengthening the industrial base that provides solutions to warfighting needs—and from which the Joint Staff develops its Joint Integrating Concepts and Joint Operating Concepts. This report addresses the second of those functional concepts, Joint Command and Control.
Topic:
Defense Policy, Industrial Policy, and Science and Technology
Political Geography:
United States