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2561. The Inflation Persistence of Staggered Contracts

Author:
Luca Guerrieri
Publication Date:
08-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
One of the criticisms routinely advanced against models of the business cycle with staggered contracts is their inability to generate inflation persistence. This paper finds that staggered contracts µa la Taylor are, in fact, capable of reproducing the inflation persistence implied by U.S. data. Following Fuhrer and Moore, I capture the moments that the contract specification needs to replicate by using the correlograms from a small vector autoregression (VAR) that includes inflation among the endogenous variables. A simple structural model substitutes the inflation equation from the VAR with the contract specification. I estimate the contract parameters in the structural model by maximum likelihood. The correlogram for the endogenous variables from the estimated structural model, including that for inflation, are very close to the correlograms from the VAR (and are contained within their 90% confidence intervals). By the same metric, where Taylor contracts do not fare well is in reproducing the cross-correlations between inflation and output.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

2562. Productivity Shocks, Habits, and the Current Account

Author:
Joseph W. Gruber
Publication Date:
08-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Empirical work regarding Intertemporal Current Account (ICA) models has centered around two distinct testing methodologies, present value tests and a productivity shock approach as formulated by Glick and Rogoff (1995). In previous work, Gruber (2001), I have tested and ICA model that allows for habits in aggregate consumption via the present value method. This paper applies the alternative Glick and Rogoff style approach to testing the model. The benefits of doing such are an ability to separate country-specific from worldwide output changes, a distinction of considerable importance, as well as to impose restrictions on the relationship between investment and output, neither of which are possible in the present value framework. The results of the test are supportive of the existence of habits and coincide with the results of Gruber (2001). The degree of habit persistence implied by the model is estimated for the G-7 countries. The paper also proposes habit formation as a possible solution to an empirical puzzle identified in the original Glick and Rogoff paper.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

2563. Resolving Conflicts In The Caucasus And Moldova: Perspectives On Next Steps

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
On 6-7 May 2002, the National Intelligence Council and the Department of State's Bureau of Intelligence and Research sponsored a conference that examined the prospects for resolving regional conflicts involving four states of the former Soviet Union: Georgia, Armenia, Azerbaijan, and Moldova. The conference brought together outside scholars, regional experts and officials to discuss the conflicts in Abkhazia, South Ossetia, Nagorno-Karabakh, and Transnistria. The purpose was not to arrive at a consensus but to deepen understanding of the complex geopolitical dynamics at work in the region.
Topic:
Conflict Resolution, International Relations, and Peace Studies
Political Geography:
Moldova, Eastern Europe, Armenia, Azerbaijan, Georgia, South Ossetia, and Abkhazia

2564. Equity Prices, Household Wealth, and Consumption Growth in Foreign Industrial Countries: Wealth Effects in the 1990s

Author:
Carol C. Bertaut
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Although most recent empirical research regarding the size and significance of the impact of changes in wealth on consumption has looked for such effects in the United States, equity prices in the 1990s rose considerably in most other industrial countries as well. This paper investigates the strength of the wealth effect across countries. Using a variety of methods, I find evidence of significant wealth effects in the United Kingdom and Canada of a size comparable to that in the United States, reflecting the importance of equities in aggregate household wealth in these countries. A significant wealth effect is also evident in Japan, but because household wealth has changed little on balance in Japan in recent years, this channel has been less important in explaining Japanese consumption growth in the second half of the 1990s. Despite a rapid appreciation in equity prices and an increase in equity ownership in the major continental European countries since 1995, equities remain a less important form of household wealth in most of these countries, and the consumption response to changes in wealth remains limited. However, in some smaller European countries where equity issuance is more common, the emerging evidence suggests that wealth effects may be more important.
Topic:
International Relations, Economics, Globalization, and International Trade and Finance
Political Geography:
United States, United Kingdom, Europe, and Canada

2565. International Coordination of Macroeconomic Policies: Still Alive in the New Millennium?

Author:
Joseph E. Gagnon, Dale W. Henderson, Brian M. Doyle, and Laurence H. Meyer
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In this paper we provide two building blocks for an analysis of international policy coordination: (1) a survey of models of policy coordination, and (2) an account of experience with policy coordination among the G-7 countries and within Europe since the breakdown of the Bretton Woods System. Using these building blocks, we investigate the correspondence between the models and experience and attempt to draw lessons for both the modelers and the practitioners. We find that the correspondence is close enough that the models help in analyzing several instances of actual policy coordination, but that the correspondence could be even closer. As for lessons for modelers, we suggest that they devote more attention to the analysis of information exchange, a key feature of practical policy coordination; to the coordination of different types of policies; to the ramifications of political divisions within countries; and to the implications of market irrationality and speculative bubbles. As for lessons for policy makers, we suggest that they give more consideration to the choice of their ultimate objectives, in particular to whether the current account should always be close to balance; to achieving better internal policies; and to the greater use of fiscal policy as a stabilization tool.
Topic:
International Relations, Economics, Globalization, and International Trade and Finance
Political Geography:
Europe

2566. Financial Centers and the Geography of Capital Flows

Author:
Francis E. Warnock and Chad Cleaver
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We examine an assumption common in empirical work on bilateral portfolio capital flows that the countries the flows are attributed to are also the countries of the security's issuer, seller, or ultimate buyer. We do this by estimating U.S. investors' holdings of debt and equities in over 40 countries and, for the same countries, foreign investors' holdings of U.S. debt and equities. A comparison of our estimates with data from benchmark surveys provides insight into U.S. data on international debt and equity transactions. We find that, contrary to the common assumption, the data do not track the location of U.S. investment or the location of investors in U.S. assets very well. Because the U.S. portfolio flow data collection system was designed to measure cross-border transactions with foreign counterparties who are often intermediaries, the majority of the flows are attributed to financial centers. By aggregating our country-level estimates, we find that U.S. data accurately portray net inflows into U.S. equities and net outflows into foreign bonds. However, the data substantially overcount net inflows into U.S. bonds and may undercount net outflows into foreign equities. We conclude with a discussion of the implications of our findings for research on capital flows.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

2567. Afghanistan and Regional Geopolitical Dynamics after 11 September

Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In April 2002, the National Intelligence Council sponsored a conference that examined the impact of events in Afghanistan since 11 September on a variety of regional actors, including Russia, Iran, Turkey, India, Europe, Pakistan, and the Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The conference brought together government and outside experts and consisted of four workshops with presentations from ten academic and regional experts, followed by lengthy discussion sessions. The purpose of the conference was not to arrive at a consensus but to deepen understanding of the complex geopolitical dynamics at work in the region.
Topic:
International Relations, Regional Cooperation, and Terrorism
Political Geography:
Pakistan, Russia, Europe, Iran, Turkey, Middle East, India, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan

2568. On the Sequencing of Projects, Reputation Building, and Relationship Finance

Author:
David C. Smith, Steven Ongena, and Dominik Egli
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study the decision an entrepreneur faces in financing multiple projects and show that relationship financing will arise endogenously in an environment where strategic defaults are likely, even when firms have access to arm's-length financing. Relationship financing allows an entrepreneur to build a private reputation for repayment that reduces the cost of financing. However, in an environment where the risk of strategic default is low, the benefits from reputation building are outweighed by holdup rents extractable by the incumbent lender. Entrepreneurs then choose to finance projects from single or multiple arm's-length lenders.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

2569. La calidad del ciudadano. Past and Present. The Nature of Citizenship in Mexico and the United States- 1776-1912

Author:
Erika Pani
Publication Date:
07-2002
Content Type:
Working Paper
Institution:
The Wilson Center
Abstract:
Mexico's transition to democratic rule has triggered much debate about the legacies of the past under which Mexicans must labor. Mexico is seen as emerging from a monolithic, murky and only rarely interrupted authoritarian past, from the Aztec tlatoanis to the PRI. Mexican “political culture” is seen as both the underlying principle and the creature of this historical experience. Some characterize Mexicans as lacking democratic values, with no electoral culture and with their families structured along patriarchic and authoritarian lines. Ironically, this approach, which tries to explain the present by understanding the past, is blatantly unhistorical. It speaks of static, eternal core values, of an unchanging México Profundo that has supposedly lurked inside every Mexican through the ages regardless of class or regional origin. Thus, writes one scholar, “behind an image of modernity and values, lies hidden the arithmetic relationship of dominion and subordination.” The trappings of a modern society barely cover one that is deeply traditional, whose real values and practices are rooted in “the ancient Mesoamerican civilizations.”
Topic:
International Relations, Security, and Regional Cooperation
Political Geography:
United States and Mexico

2570. U.S. Policy Toward the Former Yugoslavia

Author:
Steven E. Meyer
Publication Date:
08-2002
Content Type:
Working Paper
Institution:
The Wilson Center
Abstract:
As long as the Cold War framed the international arena, relations between the United States and Yugoslavia were—for the most part—fairly clear and predictable. Both sides played their assigned roles well in the larger East-West drama. For the U.S., Yugoslavia—after Tito and Stalin split in 1948—was the useful, even reliable, strategically-placed, communist antagonist to the Soviet Union. Certainly, Washington complained at times about Yugoslavia's preference for nonalignment and lamented the fact that it was not part of the Western alliance. The fact that Yugoslavia was indeed a communist state that Moscow could not control, however, more than compensated for these “short comings.” As a reward, the U.S. courted Tito, provided economic aid, and paid virtually no attention to how he ran the country—even his brutal rise to power after World War II was of little consequence.
Topic:
International Relations, Foreign Policy, Cold War, and Politics
Political Geography:
United States, Europe, Washington, Soviet Union, and Yugoslavia